An Options Analysis for the Commercial and Economic Development of Offshore Methane Hydrates as a Future Energy Option For New Zealand
Prepared for Crown Minerals Group Ministry For Economic Development
The New Zealand Centre for Advanced Engineering University of Canterbury Campus 39 Creyke Road, Private Bag 4800
Christchurch 8140, New Zealand
23rd June 2009 Disclaimer This report represents solely the views and opinions of the CAENZ Study Team, and has been generated independently of the Client and the contributors to this study. The conclusions and recommendations for the way forward sections of this report do not represent the views of the Institute of Geological and Nuclear Sciences Limited, the National Institute of Water and Atmospheric Research Limited, The Client or the other contributors.
Approved by:
R J (George) Hooper Executive Director New Zealand Centre for Advanced Engineering (CAENZ)
Printing History First printed in May 2009, revised and reprinted in June 2009
ISBN 978-0-908993-46-8
NEW ZEALAND CENTRE FOR ADVANCED ENGINEERING
CAENZ is an independent think-tank and research facilitator, funded by grants and sponsorships. CAENZ’s mission is to advance social progress and economic growth for New Zealand through broadening national understanding of emerging technologies and facilitating early adoption of advanced technological solutions. www.caenz.com
Address for correspondence New Zealand Centre for Advanced Engineering, University of Canterbury Campus, Private Bag 4800, Christchurch, New Zealand. Phone +64 3 364 2478 Fax +64 3 364 2069 email [email protected] www.caenz.com ACKNOWLEDGEMENTS
This study was commissioned by the Crown Minerals Group, New Zealand Ministry for Economic Development (MED). CAENZ gratefully acknowledges the support of the MED staff in the production of this report.
CAENZ also wish to acknowledge and thank the contributors below for the provision of information and technical input into this study.
Project Team Dr R J (George) Hooper, Executive Director, CAENZ Mr Kevin Chong, Programme Manager, CAENZ Dr J M (Mac) Beggs, Managing Director, GeoSphere Mr John Duncan, Energy Analyst Mr John de Buerger, Capital Costs Estimator, Transfield Worley Mr Hamish McKinnon, Masterate Candidate, Chemical & Process Engineering, University of Canterbury
Key Contributors Institute of Geological and Nuclear Sciences (GNS Science) Dr Vaughan Stagpoole, Section Manager Ocean Exploration Dr Stuart Henrys, Geophysicist Dr Ingo Pecher, Geophysicist
National Institute of Water and Atmospheric Research (NIWA) Dr Geoffroy Lamarche, Principle Scientist Dr Philip Barnes, Principal Scientist Ocean Geology
Other Contributors Dr Bruce Riddolls, Technical Writer & Internal Reviewer Mr Gary Eng, Energy Markets Analyst Mr Matthew Stevens, GeoSphere Ms Yvette Hobbs, Masterate Candidate, Department of Engineering Geology, University of Canterbury
Publication Mr Shane Gallagher, CAENZ Mr Charles Hendtlass, CAENZ
Chapter Heading Page Page Hydrates Options Analysis CONTENTS
Acknowledgements...... 3
Table of Contents...... 5
Glossary...... 9
Executive Summary...... 11
1 Introduction...... 13
2 Study Context...... 21
3 New Zealand Hydrate Resources...... 25
4 International Approaches to Hydrate Development...... 41
5 Opportunity Analysis...... 51 5.1 Hydrates Well Development Plan...... 51 5.2 Economic Analysis...... 55
6 Information Management Framework for Gas Hydrates...... 69
7 Preliminary Results...... 77 7.1 The Way Forward...... 77 7.2 Energy������������������������������������������������ and Resources and Economic Policy Context...... 78
8 Conclusions...... 83
References...... 87
Appendices Appendix 1: Project Team and Contributor Profiles...... 95
Appendix 2: Selected New Zealand Gas Hydrates Bibliography...... 99
Appendix 3: Summary of Voyages and Surveys Relevant to Gas Hydrates on the East Coast of the North Island...... 103
Appendix 4: Selected Summaries of the national Gas Hydrates Research Programmes...... 105
Appendix 5: Future Work...... 119
Appendix 6: Preliminary Gas Hydrates Well Development Plan [Prepared by Transfield Worley]...... 121
Appendix 7: Economic Analysis [Prepared by John Duncan]...... 157
Appendix 8: Forward Calendar of Selected Gas Hydrates Events...... 173
Appendix 9: CAENZ Strategic Initiatives / Gas Hydrates Programme...... 175
Contents Page LIST OF FIGURES AND TABLES Figure 1.1: Examples of Methane Hydrates ...... 13 Figure 1.2: Methane Hydrate Phase Diagrams...... 14 Figure 1.3: Theoretical, Sedimentary and Potential Zones of Gas Hydrate Formation in An Oceanic Setting...... 14 Figure 1.4: Production methods for extracting natural gas from methane hydrate deposits...... 16 Figure 1.5: US Coal Bed Methane Production 1998-2004...... 17
Figure 2.1: New Zealand Natural Gas Supply Capacity...... 21
Figure 3.1: RV Sonne Voyage SO191, Hikurangi Margin, 2007 ...... 26 Figure 3.2: Fiordland Margin Gas Hydrate Province...... 27 Figure 3.3: Hikurangi & Fiordland Margin Gas Hydrate Provinces...... 27 Figure 3.4: Hikurangi Margin Gas Hydrate Province...... 28 Figure 3.5: Hikurangi Margin Gas Hydrate ‘Sweet Spots’...... 29 Figure 3.6: Other NZ Gas Hydrate Provinces ...... 30 Figure 3.7: Shallow gas hydrates from joint analysis of seismic and CSEM data on the Porangahau Ridge...... 30 Figure 3.8: Summary of tectonic, stratigraphic, and hydrogeological aspects of the Hikurangi Margin...... 30 Figure 3.9: Overview of the Hikurangi subduction zone...... 32 Figure 3.10: Worldwide occurrences of hydrates...... 35 Figure 3.11: Nankai Trough Gas Hydrate Province...... 35 Figure 3.12: Gulf of Mexico Gas Hydrate Province...... 36 Figure 3.13: Sites of recent and scheduled drilling (April-May 2009) in the Gulf of Mexico Gas Hydrate Province...... 37 Figure 3.14: Map of Texas A&M gas hydrate drill cores with related oil and gas seeps and fields in the Gulf of Mexico...... 37 Figure 3.15: India Gas Hydrate Provinces...... 38 Figure 3.16: China Hydrate Province, North China Sea...... 39 Figure 3.17: South Korea Gas Hydrate Province, Ulleung Basin...... 39
Figure 4.1: USGS estimates of the United States in-place gas resources within gas hydrates...... 42 Figure 4.2: Map of Nankai Trough hydrate resource area...... 43 Figure 4.3: Map of key hydrate deposits explored during the Indian NGHP Expedition 01...... 44 Figure 4.4: Mallik location map...... 46 Figure 4.5: Internal rates of return for a 500MMscf/d hydrate development. No royalties pre-tax...... 47
Figure 5.1: Wairarapa ‘Sweet Spot’ Location...... 51 Figure 5.2: Major tectonic and geomorphic features associated with the Wairarapa seep sites...... 52 Figure 5.2a: Notional Gas Hydrate Field Development Plan...... 53 Figure 5.3: Comparison of Unit Cost of Production for a 300 PJ Development at different discount rates...... 56 Figure 5.4: Average cost of gas hydrates production at different discount rates...... 60 Figure 5.5: Linkage between LNG Price and Hydrate Project IRR...... 62 Figure 5.6: Linkage between Oil Price and Hydrate Project IRR...... 63 Figure 5.7: Economic impact of accelerating project by 10 years...... 64 Figure 5.8: Economic impact of accelerating project by 20 years...... 64 Figure 5.9: Discounted Cashflows for the Composite (staged) Hydrate Development...... 66
Page Hydrates Options Analysis Figure 7.1: Staged Development Outline...... 81
Table 3.1: Comparison of the Potential Production Capacity of the Hikurangi & Fiordland Gas Hydrates Provinces...... 29 Table 3.2: Spatial and physical characteristics of key gas hydrates research sites...... 33
Table 5.1: Gas Hydrate Capital Cost Estimate Summary...... 53 Table 5.2: Capital Cost Estimates for Phase 1 – Preliminary Proving & Testing...... 54 Table 5.3: Capital Cost Estimates for Phase 2 – 10 PJ Appraisal & Development...... 54 Table 5.4: Capital Cost Estimates for Phase 3 – 150 PJ Development & Production...... 55 Table 5.5: Development Scenarios...... 57 Table 5.6: Methane Values Determined from LNG Prices...... 58 Table 5.7: Costs of Exploiting Hydrate Resource...... 59 Table 5.8: Internal Rates of Return for Replacement of Gas by Hydrates ...... 61 Table 5.9: Internal Rates of Return for Composite and 300 PJ Scenarios...... 65
Table 6.1: Types of Petroleum Permits under the Crown Minerals Act 1991...... 72
Table 7.1: Notional New Zealand Gas Hydrates Development Pathway ...... 82
Contents Page Page Hydrates Options Analysis GLOSSARY
BAU Business As Usual BGHS Base Gas Hydrate Stability Zone Bm3 Billion cubic metres BSR Bottom Stimulating Reflectors CIF Cost Including Freight (trade term) CM The Crown Minerals Group, Ministry for Economic Development, New Zealand CBM Coal Bed Methane aka Coal Seam Methane CSM Coal Seam Methane aka Coal Bed Methane CSEM Controlled Source Electromagnetic Marine Survey Technology CSS Carbon Capture and Sequenstration ERR Economically Recoverable Resources (Gas Hydrate) FOB Free On Board (trade term) FPU Floating Production Unit GJ Giga Joule GNS The Institute of Geological and Nuclear Sciences, New Zealand IRR Internal Rate of Return JAPEX Japan Petroleum Exploration Corporation JIP Joint Industry Programme JNOC Japan National Oil Corporation JOGMEC Japan Oil, Gas and Metals National Corporation KNOC South Korea National Oil Corporation LDHI Low Dose Hydrate Inhibitor LNG Liquefied Natural Gas mbsl Metres Below Sea Level MED Ministry for Economic Development, New Zealand MH21 Research Consortium for Methane Hydrates Research In Japan, incorporating Japan Oil, Gas and Metals National Corporation (JOGMEC), the National Institute of Advanced Industrial Science and Technology (AIST), and the Engineering Advancement Association of Japan (ENAA) MHAC Methane Hydrates Advisory Council, United States of America MITI Ministry of International Trade and Investment, Japan MMtpa Million Metric Tonne Per Annum MMscf/d Million Standard Cubic Feet per day NETL National Energy Technology Laboratory, US Department of Energy NIWA The National Institute for Water and Atmospheric Research, New Zealand NRC National Resources Canada ONGC Oil and Natural Gas Corporation, India PJ Peta Joule QGC An Australian coal seam gas explorer and producer, with developments that include Queensland’s Curtis LNG project SPAR Floating oil platform typically used in very deep waters. Tcf Trillion cubic feet (1 tcf=0.02832 tm3) TLP Tension Leg Platform Tm3 Trillion cubic metres (1 tm3=35.3146 tcf) TRR Technically Recoverable Resources (Gas Hydrate) USGS United States Geological Survey US DoE United States Department of Energy WEC World Energy Council
Appendicies Page Page 10 Hydrates Options Analysis EXECUTIVE SUMMARY
Methane hydrates within the bed of the deep together with NIWA and University of Otago continental shelf margin offshore of New geoscientists, have effectively leveraged Zealand comprise a significant component of relationships with some of the strongest our natural resources endowment. international research groups to develop a preliminary understanding of the mode of To date, the importance and potential value occurrence of methane hydrate in the sea of this resource has been largely ignored in bed of the Hikurangi (eastern North Island) New Zealand. However, the rapid advancement and Fiordland (western South Island margins). in global knowledge and understanding of This research base will, however, need to be marine methane hydrate resources, and the intensified considerably before serious work on development of technology to derive energy resource development can be undertaken. from it, strongly suggests that the prospectivity of the hydrates resource needs to be properly In this study, we have synthesised the current assessed and appraised if we are to maximise state of scientific knowledge and international the overall national benefits to New Zealand of learning to develop a possible road map for its natural resource estate. the commercial production of methane hydrate in New Zealand. This road map anticipates that This advancement in knowledge has been continuing rapid progress in the engineering derived principally from the hydrates geology and production technologies required exploration and research programmes of for hydrates extraction, both internationally nations such as the U.S. and Canada in and in New Zealand, that will allow the particular, as well as more recently India, China commercial production of energy from marine and South Korea, who are following the early hydrate to become realisable in the near-to- leadership of Japan, and from the significant medium term. The likelihood of this timeframe scientific contributions of other developed being achieved and the economic value that nations in North America and Europe. is attributable to the hydrate opportunity New Zealand is differentiated from these justifies, we believe, a considerable ramp-up countries by the smaller size of our population of hydrate research in this country, as well as a and economy. However, this country’s methane targeted investigative and development effort hydrates endowment is potentially one of the designed to ensure that New Zealand has the largest in the world and very likely, the largest earliest possible opportunity to develop its on a per capita or per unit of GDP basis. marine hydrate resources.
Commercial development of this resource Potential benefits of New Zealand leadership will rely on practical technologies for the in marine hydrate development include the recovery of marine methane hydrate to be following: proven, and optimised for application in New • Indigenous gas hydrate development could Zealand conditions. Once this goal is attained, prove preferable to LNG importation as development of this resource opportunity will a “backstop” thermal fuel for electricity be able to more than adequately fulfil our generation and direct use, should domestic requirements for natural gas; and in exploration fall short of sustaining addition, could form the basis for major new conventional and other unconventional gas export industry. supplies; • Development could be on a scale that The research basis for an accelerated would exceed New Zealand’s own programme of investigation towards the requirements and underpin new or other commercial development of New Zealand’s alternative industries that would generate marine hydrate resources is surprisingly strong, substantial export revenues; e.g. LNG considering the limited funding allocated exports; over the past decade or so. GNS Science,
Executive Summary Page 11 • Abundant energy would restore the Accelerating the development of the hydrates competitive advantage of value-adding resources could significantly reduce the long manufacturing industries, including term economic cost of supplying gas to the petrochemicals, in New Zealand by lowering New Zealand market. Extending this case to current energy tariffs; 300 PJ/year offers a potentially viable export • New Zealand would develop a world- gas option. leading skilled service industry for marine gas hydrate development. This study recommends that government develop and implement a strategic programme A conceptual hydrates well development plan to bring forward assessment of the gas for a prospective Wairarapa ‘sweet spot’ site hydrates resource and put in place the offshore of the Wairarapa cost of the lower necessary studies to allow the ongoing eastern North Island, prepared by Transfield evaluation of the business case for gas hydrate Worley Services specifically for this study, development. Moving forward, however, has provided a robust overview of the likely requires that New Zealand fully assess all scale of costs to develop the marine hydrates options available to it and not just gas resource opportunity. While significantly high hydrates. CAENZ has previously argued for a relative to conventional gas developments separate agency responsible for procuring and at present, these costs are likely to reduce undertaking the necessary investigations to over time as new technologies are developed maximise the value of indigenous resources or existing conventional technologies are and to ensure that commercial exploitation optimised. of these resources are fully aligned with the However, the purpose of the study has not national interest. been simply to provide an economic case for This study reinforces the case for the investment in hydrate development. More establishment of such an entity and suggests importantly, we have sought to establish the that New Zealand could be at the forefront likely benefits that will flow to New Zealand of investigation of this frontier resource from a national investment in improving the opportunity. Further advancement of the New prospectively of the county’s continental shelf Zealand hydrates opportunity will offer an region and it’s petroleum resources. We should important contribution to technology and not lose sight of the value that can be ascribed science capacity in this country, as well as to an improved and diverse energy reserves offering a transformational opportunity for the position and the security of fuel supply that New Zealand resource sectors. would derive from this.
In this study, we have assessed a national staged gas hydrates development producing 150 PJ/year natural gas as an alternative to imported or indigenous fuel. When compared against imported LNG, the cost-benefit analysis indicates a significant net economic benefit under the base case assumptions used.
Page 12 Hydrates Options Analysis 1 INTRODUCTION
1.1. Background contributions made by our international visitors, we have also sought to identify critical This report aims to provide an objective, gaps in our knowledge base and opportunities independent and ‘over-the-horizon’ perspective for future alignment of New Zealand activity on the potential economic benefits to New with international hydrate exploration and Zealand that might arise from commercial development efforts. development of its substantial methane gas hydrates resource, and the options available The study reports an options analysis that to the country to more effectively leverage provides a possible road map for the commercial present expertise to build greater indigenous production of gas hydrate in New Zealand, capacity in this field. the preferred arrangements between industry, government and the research sector that would In bringing this perspective together, the study allow for the optimal realisation of the economic team gave particular emphasis to learning from potential of the resource, and the likely economic international experience, and during the course benefits that would flow to New Zealand from of the study initiated a number of international commercialisation of the resource. visits from recognised leaders in the field, as well as contributing towards multi-stakeholder initiatives intended to help with building 1.2 Methane Hydrates ongoing research relationships and capability. In this report, we consider methane hydrates A desired additional outcome of the study is to as possibly New Zealand’s next major energy facilitate participation by New Zealand research resource. Chemically, methane stored as hydrates institutes in international joint ventures is no different to other methane resources such and collaborations, and to encourage the as those found in free gas reservoirs and coal participation of New Zealand industry players seams. It was the discovery of naturally occurring in any future national effort to extend our hydrate beneath the Siberian permafrost in 1969 knowledge of the resource. that opened up the possibilities of their potential as an energy resource. Since that time, a growing In this report we examine the status of our awareness of gas hydrates has prompted many of knowledge of New Zealand’s gas hydrate the world’s leading economies to actively engage deposits, and the practicalities of their in research. Hundreds of millions of dollars have extraction and production. Through the been spent in international efforts to survey, engagement with industry players and the characterize and produce gas from hydrate deposits (MHAC 20071).
1 US Federal Methane Hydrates Advisory Committee (MHAC) 2007. Report to Congress – An Assessment of the Meth- ane Hydrate Research Program and An Assessment of the 5-Year Research Plan of the Department of Energy.
Figure 1.1: Examples of Methane Hydrates (from Pierce 2008)
Introduction Page 13 Figure 1.2: Methane Hydrate Phase Diagrams (from Hancock 2008)
Methane hydrates (also known as methane The occurrence of gas hydrates in continental clathrates or natural gas hydrates) are a frozen slope settings is limited to the extent of the gas form of methane gas, bound by water lattices or hydrate stability zone (Figure 1.3) and requires ‘cages’ in an ice-like substance as shown in the a source of hydrocarbon gas. It has emerged Figure 1.1 on the previous page. from the body of international research that the particular mode of occurrence of hydrate Methane only exists in hydrate form under specific within this zone is highly heterogeneous. temperature and pressure conditions, known as Characterisation of specific sea bed hydrate the 'gas hydrate stability zone'. The temperature deposits is a prerequisite to their assessment for and pressure conditions for hydrate formation potential commercial energy development. differs across onshore and offshore settings. Figure 1.2 illustrates the phase diagrams for methane Natural gas hydrates are not uniquely methane, hydrate formation in arctic and marine settings. and in their naturally occurring form, can comprise other light gases such as nitrogen, carbon dioxide Hydrates are known to occur in a variety of and ethane. Typically however, a hydrate resource geological conditions, from permeable shales and comprises mostly methane, and distinguishes sandstone to very fine mud deposits. itself in that the concentrations of methane are
Figure 1.3 illustrates the Oceanic setting for the gas hydrate stability zone and the theoretical, sedimentary, and potential zones of gas hydrate formation. The inset shows arbitrary examples of depth-temperature profiles in which gas hydrates are stable. The phase boundary is for a methane hydrate in pure water (NOAA 2005, adapted from Beauchamp 2004).
Figure 1.3: Oceanic setting for the gas hydrate stability zone
Page 14 Hydrates Options Analysis usually greater than 90%. The hydrate state can development (Pecher & Henrys 2003). If fully therefore be considered as a natural purifier developed, this quantity of hydrate could supply when compared with conventional natural gas New Zealand’s current energy requirements for resources, and this makes hydrates a potentially natural gas for at least 100 years. high quality source of natural gas, with little (if There are many uses that could be envisaged any) downstream processing required to bring it for such a natural gas stream, including export to sales gas quality. as LNG or as a reconstituted hydrate, conversion to chemicals or fuels, or for power generation 1.3 Energy Potential of Gas and direct use within the domestic market. This Hydrates study does not consider these alternatives in any detail but instead focuses on the requirements Estimates of the energy potential of gas hydrates for development under different scenarios, from around the world have prompted major encompassing both export and domestic use economies to advance the development of options. discovered gas hydrate resources. While these estimates of total global resource potential are uncertain at best the World Energy Council’s 2007 1.4 Recovery And Survey of Energy Resources (WEC 2007) predicts Production of Hydrates between 20,000 and 25,000 trillion cubic metres The process for exploiting hydrates is little (Tm3) of hydrates present offshore2(or 706,293- different from that conventionally carried out for 882,866 tcf). By contrast, the WEC estimate for the recovery of any hydrocarbon resource. conventional natural gas reserves, which at 380 3 Tm (13,449 tcf) is equivalent to 130 years of Extracting methane gas from the solid hydrate present global natural gas consumption, pales in phase is the distinguishing element of the process comparison. when compared to conventional gas recovery. Whereas in other processes the methane is New Zealand has one of the largest single gas either free gas trapped below a solid geological hydrate provinces in the world. Gas hydrates formation, or absorbed to coal in the case of coal occur along the East Coast (Hikurangi) and bed methane, the methane in hydrates is bound Fiordland margins in water depths greater than by the formation of a cage of water molecules about 600m. The East Coast province is ideally around the methane molecule. Extraction positioned for energy production because of the techniques exploit the natural instability of size of the resource, a number of identified but hydrates at lower pressure or higher temperature. unproven hydrate ‘sweet spots’ and its close proximity to land. Following a series of short term depressurisation experiments in 2002 at the Mallik site in New Zealand’s average annual energy the Canadian Arctic, a 5 day production trial consumption from natural gas is of the order conducted in 2008 utilising thermal stimulation of 190 PJ (MED 20083). This equates to (ie. circulation of warm water) was sufficient approximately 5.1 billion cubic metres (Bm3) or to cause the methane to come away from the 0.18 tcf gas. GNS Science’s current estimate of hydrate, and confirm predictions from the 2002 the extent of the hydrate resource contained in programme that gas production from hydrates the Hikurangi Margin area is around 813 - 840 at the Millik site by means of thermally induced trillion cubic feet (tcf) of natural gas-equivalent, dissociation was technically feasible (Moridis et 21 tcf of which is identified as being in ‘sweet al. 2008). We note, however, that the Mallik trial spots’ or areas of potentially commercially viable was a research project and not an industry-style production test.
2 World Energy Council 2007. Survey of Energy Resources; More advanced techniques to accelerate methane http://www.worldenergy.org/publications/survey_of_en- ergy_resources_2007/default.asp. Retrieved 20th January recovery are being developed and further 2009 production testing has been proposed in a 3 New Zealand Ministry for Economic Development. 2008. number of programmes, but in essence, the major Gas Use. http://www.med.govt.New Zealand/templates/Mul- tipageDocumentTOC_21222.aspx. Retrieved 20th January technical constraint to the commercial recovery 2009 of hydrate will be well performance and bottom-
Introduction Page 15 hole stability within the production zone. (Gary In assessing the potential of natural gas Humphreys, pers. comm.) Hancock’s presentation hydrates as a future energy resource, the to the 2008 New Zealand Petroleum Conference emergence of Coal Bed Methane (CBM) as suggests that in comparison to conventional gas a commercial energy opportunity is a useful reservoir production, a gas hydrate well can be analogy. CBM is the gas found in coal deposits expected to have significantly lower production and a cubic metre of coal can contain as much rates and high water cuts. This in turn will as six or seven times the volume of natural gas require a larger number of production wells than that exists in the same volume of a conventional required in conventional gas field development and likely higher operating costs. petroleum reservoir.
Once the methane has been extracted it The U.S.A. has been the world leader in CBM can be further transported and processed production. It is estimated to have in-place using conventional natural gas technologies. CBM resources of around 700 trillion cubic feet These technologies are well developed with (tcf), of which 100 tcf may be economically New Zealand having more than 40 years of recoverable. Due to recent high gas prices production experience based on the Taranaki oil and production incentives offered by the US government, and in response to dwindling and gas industry. conventional gas supplies, CBM has shifted Figure 1.4 provides a high level illustration of the from being a scientific curiosity 20 years ago three commonly accepted methods for extracting (and simply regarded as a potential hazard to gas from hydrate deposits (Ruppel 2007). conventional mining) to now accounting for over 1.76 tcf (1860 PJ) annually or almost 10 percent of US natural gas production. 1.5 Gas Hydrate Developments: A Coal Bed Figure 1.5 tracks the increase in production over the 15-year period from 1989 through to 2004. Methane Analogy During this period, production increased some Internationally, methane hydrates as a 16 fold with proven reserves now more than 19.6 potential energy resource have generated tcf (20,800 PJ). considerable interest. Seismic and geological Elsewhere, CBM is produced in at least 13 surveys of suspected hydrate-bearing regions countries, with Queensland in Australia emerging have demonstrated its wide extent, with as a major new international player. Several deposits confirmed onshore under Russian major projects have been recently announced, and North American permafrost and offshore fuelled by increasing worldwide energy prices, of every continent. In nearly all cases, as well as the potential for project financing hydrate development activities have involved derived from emissions credits. In 2007, total commercial, governmental and academic bodies production in Australia was 103 PJ, up more collaborating towards common goals.
Figure 1.4: Production methods for extracting natural gas from methane hydrate deposits (Ruppel 2007:198)
Page 16 Hydrates Options Analysis Figure 1.5: US CBM Production 1998-2004 (Pierce 2008; slide 5) than 40 percent from the previous year, and In summary, CBM has become an increasingly the rate of growth has not slowed since. The important contributor to world gas supply total proven and probable reserves booked by within 15 -20 years of the first tentative companies in Australia are estimated at close exploration and commercial development of to 7000 PJ4. the resource. Fifteen years ago, its potential was largely unknown and untapped. Nowadays, Of current Australian production, more than it is no longer seen as a non-conventional half is contracted for use in power generation. resource but as a major new value stream for In addition, there have been a number of LNG resource owners. projects announced based upon CBM. These include: Recent research and development, technological advances, increasing international • Arrow Energy, who announced plans for a interest and rising natural gas prices all 2.6 million tonne per annum LNG project at suggest that commercial production of gas Gladstone, commencing production in 2011; hydrates may well occur within a similar • A 3-4 million tonne per annum LNG project, time frame. Worldwide time frames are being also based at Gladstone and starting re-evaluated and research efforts becoming production in 2014, using 170-220 PJ per more focused on the testing of alternative annum of CBM from Santos; production strategies that could accelerate time • Sunshine Gas, who announced plans for frames. a half million tonne per annum project to commence production in 2012; and, It is within this context and the expanded geologic and engineering understanding of gas • A proposed gas project by QGC in alliance hydrates that Crown Minerals commissioned with BG, for a 3-4 million tonne per annum project to begin production in 2013. CAENZ to undertake the work reported here.
Success with these proposed LNG projects could lead to a quantum leap in CBM 1.6 International production. Total current LNG proposals add Engagement up to 500-600 PJ of gas per annum, similar to An important lesson from this study is that Australia’s total current east coast gas demand. New Zealand has an exciting hydrates story to Current indicated reserves are of the order of tell that is beginning to attract international 15,000-30,000 PJ for the industry as a whole in interest. the long term, around two to four times current booked reserves, and providing a significant This international interest has been built on boost to Australia’s strategic energy reserves. an extensive platform of international linkages established by New Zealand researchers, and 4 Graeme Bethune, Chief Executive Officer, EnergyQuest; in GNS Science in particular, since 2005 with: the February 2008 issue of Petroleum
Introduction Page 17 • Rick Coffin, Naval Research Laboratorie CAENZ has also been actively exploring (NRL); complementary initiatives with potential • Steve Masutani, University of Hawaii; strategic and commercial partners to promote and support the development of the New • Jens Greinert, Gent University, Belgium; Zealand gas hydrates resource endowment. • Ben Clennell, CSIRO; The critical importance of an ongoing and • Joerg Bialias, IFM GEOMAR; expanded New Zealand contribution to In the 2008-2009 period, CAENZ, in association international research efforts, in particular with and support from GNS Science and to assess the commercial feasibility of gas MED, hosted a number of Visiting Fellows hydrates, cannot be emphasised enough. from the hydrates field. In addition to public Participation in these programmes will ensure presentations and seminars, these Fellows also that New Zealand will be better positioned to provided private briefings to key government take advantage of international developments officials during their visit. They included: and assist in levering the country’s limited research funding and investment capacity to • Mr Steve Hancock, Well Completion ensure the optimal realisation of the economic Engineer from APA Engineering, Calgary in potential of this strategic resource. Alberta, Canada in March 2008; • Ms Brenda Pierce, Energy Programmes It is also likely that there will be visitors to Coordinator, US Geological Survey in other New Zealand research institutions, such Washington DC, USA in March 2008; as NIWA and Otago University, during this period with the potential to contribute to the • Dr Karen Kozielski from CSIRO, Melbourne New Zealand gas hydrates effort. It is important in Christchurch in August 2008; that linkages at the appropriate levels be • Professor Carolyn Koh, Director of the established with them during their visit. Gas Hydrates Research Centre at the Colorado School of Mines in Wellington and Christchurch in September 2008; and, 1.7 Study Context • Mr Gary Humphreys, Senior Manager In developing this study, we recognise that Scientific Drilling and Gas Hydrates from there are international groups prepared to Fugro GeoConsulting, Houston in February assist New Zealand to develop its gas hydrates 2009; resource endowment. This has been evident Other leading figures in hydrates research are since around 2005, with interest expressed by also expected to visit New Zealand in 2009, the US Naval Research Labs and the University including: of Hawaii for the establishment of a Gas Hydrates Research Corridor offshore of east • Dr Judith Schicks, Lead scientist for the GFZ coast of the North Island of New Zealand5. German Research Centre for Gas Hydrates More recently, expressions of interest in, and Research (also to sign an MoU with GNS); support for, research collaborations have been • Nina Kukowski, GFZ German Research received by both members of the study team Centre for Gas Hydrates Research; and researchers from GNS and NIWA (e.g. GNS • Katrin Schwalenberg, BGR; Science’s collaboration with IFM-Geomar for the 2011 return of the survey vessel, RV Sonne). • Gesa Netzeband, IFM GEOMAR; In addition to factors such as the presence • Sung-Rock Lee, Korean GHDO (also to sign of potential gas hydrate ‘sweet spots’ in an MoU with GNS); close proximity to land on the East Coast In addition to the research collaborations of the lower North Island, the willingness of that GNS Science and NIWA have been able international researchers to participate in a to leverage with some of the strongest New Zealand hydrates initiative has largely also international hydrates research groups, been driven by the strong and close linkages that researchers in New Zealand at GNS, NIWA 5 Ingo Pecher, GNS Science. Personal communication ca. and the University of Otago have been able 2006
Page 18 Hydrates Options Analysis to leverage. As will be come clearer in later Examination of this study, focused on a sections of this Report, an expansion of these prospective gas hydrates site on the lower linkages is a necessary component of any East Coast of the North Island, provides a national strategy to advance New Zealand gas business case for further investigation and hydrates. for investment into science and engineering studies. We also intend to demonstrate that the successful development of the gas hydrates Chapter 2 that follows provides the context for opportunity will require expertise and skills the study in more detail. that go beyond science through to commercial interests, to ultimately produce an engineered solution specific to New Zealand’s unique circumstances and national interests.
Finally, this report sets out to draw together the various strands of thinking and learning from current international activities, including the economic and technical considerations that should drive future decision making, into a comprehensive assessment of the opportunity for a potential gas hydrates development opportunity in New Zealand.
Introduction Page 19 Page 20 Hydrates Options Analysis 2 STUDY CONTEXT
2.1 Introduction Figure 2.1 below sets out the Centre’s analysis of the supply capacity of developed fields, fields CAENZ has maintained a “Frontier Resources nearly ready for development and discovered and Oceans” programme since 1996, with the reserves as of 2005. This shows a potential objective of ensuring that potential maritime supply gap arising within the next decade and energy resource opportunities are not unless there is an expansion of the gas reserves sterilised through inappropriate policy settings inventory. Whilst recent exploration success or inadequate national planning. A list of the suggests strongly that the New Zealand natural Centre’s publications and activities in this area gas resource has the potential to satisfy local may be found in the References and Selected demand (unlike many other countries), future Bibliography sections of this report. supplies remain tight and reliant on continuing A primary driver for the Centre’s programme exploration success. has been its view that despite New Zealand This just-in-time approach presents its own risks being an energy-rich country, the necessary for energy consumers; foremost amongst them is critical investments in further delineation of the continued reliance by some major users on this country’s energy resources and expansion LNG as a backstop fuel, should gas production of its energy reserves capacity has not occurred levels fall to a point where producers are unable at a level required to maintain this country’s to supply existing or future planned gas fired long-held strategic advantage of a secure and electricity generation capacity. relatively inexpensive energy supply. Instead, the various studies undertaken by the Centre In such a scenario, the risks to the New Zealand suggest that the New Zealand energy sector is economy are significant. If nothing is done to at risk of entering a period of transition and secure adequate indigenous primary energy uncertainty which, unless action is taken now, sources, the alternative is imported fuels. As could well manifest itself in uncertain supply, the Maui gas field comes to the end of its higher costs and an increasing exposure to the productive life, the projected future imbalance vagaries of the global oil market. between gas demand and gas supply will intensify. It is within this context that gas
Figure 2.1: New Zealand Natural Gas Supply Capacity (CAE 2005). An Investigation into Thermal Fuels Options and Their Contributions to Energy Security. CAE Comments Volume 04)
Study Context Page 21 hydrate development needs to be considered. the economic potential of the New Zealand New Zealand is richly endowed in gas hydrates hydrates resource. Moreover, it was argued, and thus offers a potentially relatively low that a strong New Zealand commitment to carbon indigenous energy supply. hydrates research would likely attract some of the huge international research investment Following a study in 2006 for the Ministry and commercial interest, due to the scale of for the Environment that considered possible the New Zealand resource and the proximity of government interventions to support the potential research sites close to shore. development of New Zealand’s maritime resource opportunities (CAENZ 2006), However, for such an opportunity to be fully CAENZ has maintained a watching brief on realised, it was considered vital that an international research and development efforts understanding of both the context and the related to methane hydrate extraction and options for the economic development of the exploitation. The size of the endowment and resource be developed to a level sufficient to its economic potential (both nationally and identify the preferred development pathway globally) suggests that hydrates, if proven and the optimal structure for ongoing economically attractive, could transform this investigation of the opportunity to create the country’s energy markets. The key distinction maximum value for New Zealand. between the present era and a likely hydrate It was recognised that in order to advance scenario will be the scale of the opportunity the commercial development of these marine and the economic transformation that would resources, New Zealand will need to commit ensue from expected investment in upstream to ongoing, wide-ranging and substantial export-led activity. investments in studies of the subsurface Consequently, and at the invitation of Crown geology, geo-technical and engineering Minerals, CAENZ and GNS Science brought investigations required for hydrate extraction, together a special session at the 2008 New and the engineering technical appraisals of the Zealand Petroleum Conference held in Auckland required recovery and production facilities. To to look at the current status of hydrate this end, the objectives of this study are as research and development world-wide and the outlined below. prospective value of New Zealand’s inferred gas hydrate resources. An important contribution to the session was the presentation of a road 2.2 Study Objective map for commercial development by GNS This study broadly expands on the New Science2. This road map suggested that marine Zealand Gas Hydrates Road Map3, produced hydrates represented a significant medium- and by GNS Science and presented at the 2008 long-term opportunity for New Zealand that New Zealand Petroleum Conference. It aims to would most likely occur concurrently with other assess the options for commercial development of international efforts. marine hydrates in New Zealand and establish the economic feasibility for doing so based on The success of the conference was followed by review of the international experience and the a series of briefings to officials in Wellington, motivation behind the extensive international which reinforced the lessons of the Conference programmes currently under way world wide. that there was a high level of interest in Beyond this, the study also examines the methane hydrates internationally, as well opportunity to extend current New Zealand as the potential competitive advantages for hydrate research as a provider of exploration, pioneering a hydrates initiative in New Zealand. appraisal, and development solutions expertise Almost without exception, participants in these through new collaborations with current discussions argued strongly for a greater level international players. of investment in science, engineering and New Zealand scientists have made a number commercial/strategic relationships to advance of important recent advances in the last
2 Beggs, M. et al (2008). New Zealand Gas Hydrates Road 3 Beggs, M. et al (2008). ibid. map (GNS Science Report 2008/06)
Page 22 Hydrates Options Analysis few years and international linkages with world in this field as it did in the pioneering leaders in gas hydrate research. The strategic commercialisation of the Maui gas field in the benefits of closer R&D relationships are amply early 1970’s. demonstrated by current initiatives such To do so, however, will require that a platform as the 2011 German IFM-GEOMAR research for an integrated network approach industry, programme for the Hikurangi Margin that GNS government and the research sector be created Science have successfully been able to attract that would allow for the optimal realisation to New Zealand, and the positive reception of the economic potential of the hydrates to the CAENZ-GNS bid to host the 2011 resource endowment for the benefit of New International Conference on Gas Hydrates in Zealand at the right time. New Zealand. Although New Zealand came in as a close second in this highly contested bid, Whilst the study recognises the importance GNS Science has however successfully bid to of this necessity, to deliver on such an host ‘Fiery Ice’, the 7th international Methane imperative will require a degree of lateral Hydrates R&D workshop, in Wellington in 2010. thinking “outside the box”, combined with an appropriate set of considerations and an In addition to the above, the Options Analysis enabling policy framework that recognises also sought to: the unique characteristics of ‘frontier’ • provide an objective, independent and resource opportunities. The Canadians have ‘over-the-horizon’ perspective on the used such a model, the Mallik 2002 and potential economic benefits of the New 2007 internationally partnered production Zealand of commercial exploitation of its well programmes, to develop their methane marine hydrate resources; hydrates knowledge base. Their experience has • identify and illustrate the options and been used to inform this study. potential development pathways for New Zealand to more effectively leverage its The study also recognises that New Zealand limited resources to build expertise and participation in international research capacity to commercialise the resource collaborations is a prerequisite for keeping opportunity; in step with technological developments in this field and for leveraging the establishment • identify and implement a series of targeted, of a strong domestic research and industry multi-stakeholder initiatives that would provide New Zealand with the research, capability in gas hydrates. The magnitude of commercial and strategic capacity to the inferred resource potentially available for engage with international hydrates research recovery presents for New Zealand a significant efforts; transformational opportunity of major importance to this country. • facilitate participation by New Zealand research institutes in international hydrates In this respect, GNS Science and NIWA, as New research efforts and collaborations, as Zealand’s key science organisations, will need well as the participation of New Zealand to play a critical role in advancing the country’s industry players in international commercial capacity to capitalise on this endowment. GNS consortia. Science leads New Zealand’s core research Ultimately, it was hoped that this study would program focused on gas hydrates as an energy build our understanding of the options for resource, funded by FRST in 1993 and is the economic development of the resource leading a Marsden project on gas hydrates and so that New Zealand might be better placed sea floor stability in collaboration with NIWA to capitalise on the commercial opportunity and Otago University. In addition, GNS Science when the opportunity presents itself. Whilst, has on-going related research programmes inevitably, commercial exploitation of the on the tectonics, geologic framework and resource will be reliant on international petroleum systems of New Zealand gas hydrate investment and technical expertise for the provinces, as well as related water chemistry development of the opportunity, it is the view and isotope research and has maintained an of the study team that there are no compelling active research program focused primarily on reasons why New Zealand could not lead the gas hydrates as an energy resource for the last
Study Context Page 23 5 years. NIWA too has focused on the tectonic significant interaction with international structure and geological framework of the collaborators, who were not only used to firm margins, and recently on oceanography and up the technical bases behind the analysis ecosystems around gas hydrate sites. We note but also provided a platform for discussion on that both research institutes have essentially the strategic options available to New Zealand bootstrapped their capabilities in the face of for promoting the hydrates opportunity. The relatively limited funding. However, we suggest outcome of these discussions was development that the research objectives of the international of a project plan and business case for a collaborations may not have been aligned well resourced and coordinated development necessarily with the commercial imperatives of effort, leading to a possible future investment the New Zealand E&P sector. decision. This is encapsulated in the notional gas hydrate development pathway presented in In undertaking this work, it has also become Chapter 7 of this report. apparent that access to world class marine services companies (based in Taranaki but A strong project team was established whose operating throughout the world), in addition skills comprehensively encompassed the to access to world class scientists within commercial, technical, science and research. GNS Science, NIWA and the universities, will Their profiles are provided in Appendix 1. contribute to New Zealand’s attractiveness as The preliminary results were presented to MED a destination for collaborative international in a workshop prior to completion of the report gas hydrates research initiatives. Operating and subsequent contributions from the peer conditions that are climatically more favourable review process have been incorporated into and sheltered than the Arctic, and in potentially this Final Report. shallower water than India or the Nankai Trough, provide an additional rationale for New Zealand to aspire to become a world leader in the area of marine hydrate development.
2.3 Study Approach The key limiting factors to commercial production of the hydrate deposits will be establishing the basis for site selection, resource characterisation and determining technology capability. These are the primary factors that will drive the economics of the commercial development, rather than any current appraisal of the geology or environmental settings. This is due to the structure of gas hydrate reservoirs, which requires a larger number of wells and more sophisticated equipment (and hence a higher CAPEX and OPEX) compared to conventional gas production, while lower production rates will result in a reduced rate of return and the delayed achievement of break even and a positive cash-flow position.
To this end, the study has focused very much on bringing together a development pathway to replicate a likely commercial development scheme to thus provide realistic estimates of the likely economics of production. The development of this case study involved
Page 24 Hydrates Options Analysis 3 NZ HYDRATE RESOURCES
3.1 Summary of Hikurangi appraisal and resource characterisation initiatives, new data will almost certainly reveal many other and Fiordland Provinces high profile targets.
3.1.1 Status of Knowledge Other geophysical methods are proving useful Until recently, the occurrence of crosscutting to complement reflection seismic surveying. In seismic reflectors in seismic reflection lines has particular, joint seismic and controlled-source been the main tool for establishing the presence electromagnetic (CSEM) surveys appear promising of hydrate on a regional scale in most geologic for quantifying local gas hydrate deposits. settings. Theoretical models (e.g. Xu & Ruppel Sea floor resistivity measured by CSEM allows 1999) suggest that free gas at the Base Gas determination of the concentration of free gas Hydrate Stability Zone (BGHS), generating Bottom or gas hydrate but cannot readily distinguish Stimulating Reflectors (BSRs), is a pre-requisite between either type or pore fill. Seismic for gas hydrate deposits at higher concentrations. parameters on the other hand are strongly affected by the presence of free gas but less However, this has yet to be fully established; so and differently by gas hydrate; hence, the and in isolation, appears to be a very limited combination of both techniques is a powerful tool approach, as hydrate has been shown to occur to discover and quantify gas hydrate deposits. far more widely than the occurrence of BSRs (Johnson 2006), and in a diverse variety of habits A CSEM survey over an offshore Wairarapa deposit (with a vast range of “quality” characteristics) that (Figure 3.5) has recently been used to propose are not readily discriminated without additional a conceptual model at a gross scale to constrain independent data (as hydrate saturation and the gas hydrate saturation (Schwalenberg et al. 2008; exact position of deposits are not directly related Schwalenberg et al., submitted-a). Preliminary to the location of BSRs). Irrespective of these results indicate maximum hydrate saturation of anomalies, in the absence of more sophisticated over 50%, making this site a prime candidate for data, BSRs remain the best indicator of hydrate more detailed characterization. deposits in New Zealand waters. Evaluation of combined seismic and CSEM data On parts of the Hikurangi margin, the grid of is currently being conducted in another offshore seismic lines to map BSRs is still relatively coarse, Wairarapa region, the Porangahau Ridge (Figure with lines typically tens of kilometres to >100 3.7). Initial results have led to the detection of km apart from each other. Other countries, such shallow gas hydrate deposits and their relation to as Canada, India, Korea, China, Taiwan, and of fluid-flow conduits (Toulmin et al., 2008). course Japan, have mandated denser grids of seismic lines, often only several km apart, as 3.1.2 History of Gas Hydrate a first step in gas hydrate reconnaissance. The Exploration in New Zealand seismic data available for the Hikurangi margin New Zealand’s Exclusive Economic Zone (EEZ) includes oil and gas exploration industry lines, contains two known gas hydrate provinces which are archived by Crown Minerals, and data (Townend, 1997): the Hikurangi continental from research cruises by GNS Science, NIWA margin east of the North Island (Katz, 1981; (and predecessor DSIR) and their international Henrys et al., 2003; Pecher & Henrys, 2003) collaborators. These data include a range from and the Fiordland continental margin southwest shallow penetration, low fold multi channel of the South Island (Fohrmann et al., in press). seismic data, to deep penetration, high fold industry standard exploration data. Substantially Hikurangi Margin more data is required, and seismic surveys do not The first BSR surveys of Hikurangi were reported need to be specifically designed for gas hydrate by Katz (1981). BSRs were later noted in the SOP discovery. Whilst several excellent candidate sites Lee seismic section documented by Davey et al. have already been discovered for more in-depth (1986) and Lewis and Pettinga (1993).
NZ Hydrate Resources Page 25 Seismic data acquired on the NZ-French In 2005, GNS acquired the first industry GeodyNZ Survey, using the research vessel standard seismic line to analyse potential gas L’Atalante in 1993, led to the first BSR maps hydrate sweet spots on the Porangahau Ridge and heat flow analysis of the Hikurangi Margin using the Pacific Titan (Voyage 05CM-038). (Townend, 1997; Henrys et al., 2003), and provided the basis for the first FRST funded The first dedicated gas hydrates cruise was gas hydrates project at GNS Science. Voyage TAN0607, using the NIWA research vessel Tangaroa in 2006. During this cruise, Using data collected by a number of fishing the first gas hydrate samples were collected vessels and NIWA surveys, Lewis and Marshall (Voyage TAN0616). This was a collaborative (1996) reported discoveries of numerous cold programme, and involved researchers from temperature, methane-rich fluid vent sites and NIWA, GNS and the US Naval Research Lab. associated sea floor ecological communities. A major recent advance occurred in 2007, when The North Island Geophysical Transect (NIGHT) the German research vessel Sonne, undertook Project in 2001 detected BSRs and the 3 survey legs over a 2.5-month period flattening of the “Rock Garden” site, an area of dedicated to gas hydrates and vent sites on sea floor erosion and methane venting. the Hikurangi Margin. These voyages focused on six specific sights, referred to informally Seismic sea trials by the research vessel N.B. as Wairarapa, Uruti Ridge, Porangahau Ridge, Palmer in 2003 raised the hypothesis that sea Omakere Ridge, Rock Garden and Builders floor erosion may be linked to gas hydrate freeze- Pencil (Figure 3.1) as well as advancing thaw cycles at the top of the gas hydrate stability knowledge of the regional tectonic framework. zone, which was later discussed in Pecher at al A number of papers based on the data from (2005). this voyage will be published in a special ‘Faure seeps’, a methane anomaly in a water volume of Marine Geology sometime in 2009. column on the southern edge of the Rock Garden Fiordland Margin site was discovered during a 1 day programme of bathymetry and water chemistry using a BSRs have been recognised from seismic data towed METS sensor by the NIWA research vessel from the Fiordland Margin for more than 20 Tangaroa in 2004. More information on the Faure years (e.g. Townend 1997). However, whilst seeps may be found in Faure et al (2006). there has been substantial research on the
Figure 3.1: RV Sonne Voyage SO191, Hikurangi Margin, 2007 (Greinert 2008 presentation to EGU)
Page 26 Hydrates Options Analysis Figure 3.2: Map of Fiordland Margin (from Gorman, Fohrman & Pecher 2006) tectonic structure of this margin (e.g., Lamarche (Gorman 2008) and an absence of supporting and Lebrun, 2000; Lebrun et al., 2000; Barnes information on sea floor geology. Figure 3.2 et al., 2002; in press), knowledge of hydrate illustrates the geological relationship between accumulations in the northern Puysegur region the Hikurangi and Fiordland gas hydrate is limited by the sparse dataset available, a provinces. scarcity of sediment samples and well data
Figure 3.3: Hikurangi & Fiordland Margin Gas Hydrate Provinces (Gorman 2008)
NZ Hydrate Resources Page 27 Figure 3.4: Hikurangi Margin Gas Hydrate Province (Gorman, Fohrman & Pecher 2006: p18)
Hydrate accumulations in the Fiordland Margin & Henrys 2003). For the economic evaluation region appear to be associated with slope of gas hydrate production and subsequent failure, with one particular landslide (in Figure commercial production, the detection of such 3.3) corresponding to where the BSR appears “sweet spots” is an obvious priority. to outcrop on the sea floor (Gorman 2008; The Hikurangi Margin (illustrated in Figure 3.4), Crutchley et al 2007). at approximately 50,000 km2 in size (Pecher & Henrys 2003), covers a larger area than the New Zealand Gas Hydrate Production 2200 km2 Fiordland province (Fohrmann et al., Characteristics in press). A comparison of the two gas hydrate Both provinces, the Hikurangi and the provinces are provided in Table 3.1. Fiordland Margins, are situated above plate- boundary subduction zones. Subduction zones On available data, the Hikurangi Margin also are very active geologically, leading to high shows more indications of “sweet spots” than rates of fluid flow, which is known to be a the Fiordland gas hydrate province (Pecher controlling mechanism for gas for hydrate & Henrys 2003), which provides one of the formation (Ruppel & Kinoshita 2000). The keys reasons for the focus of this report on strong geological heterogeneity associated with the Hikurangi province. Such “sweet spots”, subduction zones also favours formation of defined by seismic reflection coefficients, areas with highly concentrated gas hydrates, occur where the BSR has a relatively strong sometimes referred to as “sweet spots” (Pecher amplitude (Henrys et al., in press). The precise
Page 28 Hydrates Options Analysis Hikurangi Margin Fiordland Margin [Note 1] Area of gas hydrate 50,000 km2 [Note 2] 2,200 km2 Recoverable gas at STP per n/a 114.58 tcf (3.24 Tm3) hydrate volume Volume of gas hydrate 228.5 km3 [Note 3] 10 km3 Volume of gas at STP 37,474 km3 [Note 3] 1,600 km3 / 40 tcf (1.13 Tm3) [Note 4] Volume of recoverable gas at 23,010 km3 / 813 tcf (23 Tm3) 1100 km3 STP [Note 3]
Table 3.1: Comparison of the Potential Production Capacity of the Hikurangi & Fiordland Gas Hydrates Provinces.
Note 1: adapted from Gorman, Fohrman & Note 3: from Henrys et al (2008) p11 and Pecher (2006) p27. Pecher & Henrys (2003)
Note 2: adapted from Henrys, Pecher & CHARM Note 4: from Henrys et al (2008) p12) NZ Working Group. significance of the amplitude sweet spots with proposition may be realistic and has received respect to hydrate resources remains unclear. A support from evidence from recent drilling in map of these sweet spot locations is provided the South China Sea. It is therefore possible in Figure 3.5. that other gas hydrate provinces may also be present elsewhere in New Zealand’s EEZ. It is worth noting however, that gas hydrate Gorman et al (2008) have suggested that gas saturation for the Fiordland province have been hydrates may also be present in the Deepwater inferred from seismic data to be quite high Taranaki, Canterbury and Great South Basins (~20-30% of pore space at ~40% porosity) (Figure 3.6). over large areas (Fohrmann et al., submitted) compared to the Hikurangi margin. Despite the Zhang et al. 2007. Successful and Surprising Results from China’s First Gas Hydrates Drilling Programme. Fire In The absence of ground-truthing from drilling, this Ice, 2007, Fall Edition
Figure 3.5: Hikurangi Margin Gas Hydrate ‘Sweet Spots’ (Pecher 2006: p18)
NZ Hydrate Resources Page 29 Figure 3.6: Other NZ Gas Hydrate Provinces (adapted from Gorman, Fohrman & Pecher: p36)
In addition to the relatively higher distribution economic evaluation of commercial gas hydrate of sweet spots, the accessibility and proximity production in New Zealand (Beggs et al., 2008). of the Hikurangi margin to the major population Beyond the quantity and concentration of the centres of the North Island (e.g. Wellington and resource, another key factor for production is Napier), strongly argue for the Hikurangi Margin the quality of the reservoir rock, in particular gas hydrate province to be the focal point for the permeability (i.e. the ease at which gas moves
Figure 3.7: Shallow gas hydrates from joint analysis of seismic and CSEM data on the Porangahau Ridge. (A) Location map, (B) resistivity profile (after Schwalenberg et al. (submitted-b)) beneath seismic profile, (C) detailed locations of resistivity anomalies (blue ellipses) and identification of seismic reflections possibly associated with gas hydrates (after Toulmin et al. (2008)).
Page 30 Hydrates Options Analysis Figure 3.8: from Barnes et al. (In press). Summary of tectonic, stratigraphic, and hydrogeological aspects of the Hikurangi Margin imbricate thrust wedge. Cross section of the offshore margin 35 km south of Rock Garden, at ~2X vertical exaggeration.
NZ Hydrate Resources Page 31 Figure 3.9: Overview of the Hikurangi subduction zone, showing morphology and major active faults. Bold thrust is the principal deformation front. The bold black line in the Hikurangi Trough is the meandering Hikurangi Channel. LR, Lachlan Ridge; RR, Ritchie Ridge. (Barnes et al., in press) through sediments to the bore hole). Samples side of Rock Garden, may lie on a substrate of from the sea floor further north along the exposed Cretaceous and Paleogene rocks, or on Hikurangi Margin shown in Figure 3.8 suggest an eroded cover sequence of Miocene-Pliocene that some of the hydrate deposits may be age. The sediment types and strong heterogeneity hosted by fractured mud stones (Pecher et al., associated with this convergent margin make 2008). Barnes et al. (in press) suggested the it likely however, that significant gas hydrate shallow seismic stratigraphy of different seep reservoirs are sand-hosted deposits, the highest- areas appears to vary greatly, but has not been quality host rock and similar to the gas hydrate accurately dated at the specific seep sites (Figure fields targeted on the Nankai Trough offshore of 3.7). Consideration of regional seismic reflection Japan. characteristics and sparse sea floor samples led The source of gas is another key factor in them to infer that the Wairarapa and Omakere reservoir characterisation. The gas composition Ridge seeps are located on late Pleistocene slope of sampled seeps onshore along New Zealand’s sediments. At Uruti Ridge they are developed east coast is predominantly methane (Giggenbach on probable Pliocene strata which are exposed et al., 1993) and analysis of their carbon and at the crest and seaward flank of the ridge. The hydrogen stable isotopic signature supports a Builders Pencil substrate appears to be Miocene thermogenic origin, i.e., similar to conventional and/or Pliocene strata, which overlie older rocks gas fields. Studies of onshore oil seeps suggest exposed on the seaward flank of Ritchie Ridge. that hydrocarbons of the East Coast were derived The Rock Garden seeps, located on the western
Page 32 Hydrates Options Analysis from Late Cretaceous-Paleocene marine source 3.1.5 Sea Floor Ecology rocks (Rogers et al., 1999). It is therefore possible In addition to a number of research voyages that methane for hydrate formation offshore is exploring geophysical and geological aspects also, at least partially, of thermogenic origin, of the Hikurangi & Fiordland subduction zones, similar to conventional gas fields. However, all to date there have been two research voyages but two offshore samples from shallow piston with the specific aim of studying assemblages cores (Faure et al., submitted) point to biogenic of cold seep fauna in New Zealand waters. A processes for methane formation, i.e. by bacterial number of relevant papers on cold seep fauna action on sedimentary organic matter in the first are listed in Appendix 2. few hundreds meters beneath the sea floor. These voyages have been undertaken by 3.1.4 Geological Framework benthic ecologists to evaluate the resources Evaluating a gas hydrate resource is more than and the environmental impact of exploitation. an estimation of the quantity of methane and The voyages have demonstrated that seepage how much energy it can produce. It is also about is widespread on the Hikurangi Margin in understanding the origin of the resource, the depths of 800-1200 m and that the great mechanisms of its formation and the factors majority of sites where water column gas flares that control its spatial distribution and temporal are present are colonised by populations of stability. obligate chemosynthetic fauna, often in high abundances. Knowledge of these fauna is Over the last 25 years, both GNS Science and at a very early stage but already it is clear NIWA have focused their efforts on the structure that some species, and even genera, are new and geomorphology of the Hikurangi subduction to science and there is evidence that these margin, and have acquired an in-depth sites may represent a completely new bio- knowledge of regional structural complexity and geographic province of chemosynthetic fauna. variation along strike in response to changes It is also likely that some species are extremely in subducting crustal structure, convergence long-lived (Lamellibrachia sp. >150 y) and that rate and obliquity, and sediment supply (Figure populations at some sites have persisted for a 3.8). A number of seismic reflection and multi very long time. Given the dependence of these beam bathymetric voyages have provided organisms on active seepage at the sea bed, the underpinning data used to interpret the their potential importance in terms of global stratigraphy of the subducting sequence, biodiversity, and our incomplete knowledge of the upper plate tectonic structures, and the their ecology, it will be important to evaluate geological framework for cold vent seep sites. fully the potential effects on them of large scale gas hydrate extraction at an early stage There is a clear relationship between the seep of the planning process. There is evidence that sites and major thrust faults, which are conduits some seep sites have already been impacted for fluid and gas migration sourced from the by deepwater fishing activities but the effects deeper, inner parts of the thrust wedge, and of gas hydrate extraction on a commercial scale probably from subducting sediments. Fluid are potentially greater. and seep sites typically lie in about 700-1200 m water depth on the crests of thrust faulted Only one research voyage has been directly ridges along the mid-slope. Beneath the sea relevant to marine microbial ecology, and floor seeps on ridge crests there is typically permitted the investigation of microbial a conspicuous break in the BSRs, which are diversity and their links to gas hydrates. This widespread along the length of the margin, voyage only evaluated the microbes for their and commonly a seismically-resolvable fault- potential to degrade the methane in the water fracture network through which fluids and gas column and sediments, but did not investigate percolate (Figure 3.8). The Cretaceous and the in-situ microbial populations for their Paleogene inner foundation are considered, potential to produce methane. Currently, there on the whole, relatively impermeable and this is limited understanding of the capability of focuses fluid migration preferentially to its outer the in-situ microbial populations to produce edge via major low angle thrust faults and the methane and how this may add to the total décollement. methane pool. Further research is required
NZ Hydrate Resources Page 33
Reservoir Nation Continental Distance Depth Reservoir Estimated size ality / Offshore from shore geology Hikurangi Margin NZ Offshore 20km 600-2800m water 813 tcf (23 Tm³) Province1 (Wairarapa + 460m seabed site) Canada (total)2 1,550-28,600 tcf (43.9-809 Tm³) Mallik Canada Continental N/A 1150m 3.5 tcf (0.1 Tm³) Beaufort / Canada N/A N/A N/A N/A 311 tcf (8.8 Tm³) McKenzie Delta3 USA (total)4 318,000 tcf (9,000 Tm³) Alaskan North USA Continental N/A N/A N/A 590 tcf (16.7 Tm³) Slope5 Alaskan North USA Continental N/A N/A N/A 85-450 tcf (2.4-12.7 Slope / Prudhoe Tm³) Bay Gulf of Mexico USA Offshore 200km+ 800-3000m water, Sand 21,444 tcf (607 Province6 visible on sea Tm³) floor Gulf of Mexico USA Offshore 200km+ 800-3000m water, Sand 11,088 -34,396 tcf Province visible on sea (314-974 Tm³) floor Blake Ridge7 USA Offshore 200-300km 2000-4800m Mud 1,000-1,300 tcf (28- water +190-450m 37 Tm³) seabed Japan (total)8 1,765 tcf (50 Tm³) Nankai Trough Japan Offshore 48km 2000m water Mud 565-953 tcf (16-27 +200m seabed Tm³) Nankai Trough9 Japan Offshore 30mi from 500m water N/A 39 tcf (1.1 Tm³) Honshu Island Ulleung Japan/S Offshore 150km (Japan) 1800-2100m Sand 600MT Basin/Sea of outh 200km (Korea) water +150m Japan10 Korea seabed Krishna-Godavari India Offshore 200km 1300m water Sand & mud Basin 66,800 tcf (1,891.6 Mahanadi Basin India Offshore 30-40km 500-1000m water N/A Tm³) Andaman Islands India Offshore N/A 850-2000m water N/A Konkan Basin India Offshore N/A N/A N/A
Table 3.2: Spatial and physical characteristics of key gas hydrates research sites 1 Pecher & Henrys 2003 Table 2References: Majorowicz & Osadetz 2001 in Osadetz et al 2005 1 Pecher3 Osadetz & Henrys & Chen 200 32005 in Osadetz et al 2005 9 NGVGlobal, “USA and Japan Agree to Joint 4 Collett 1995 in Osadetz et al 2005 2 Majorowicz & Osadetz 2001 in Osadetz et al Methane Hydrate Study”, 23 May 2008. http:// 2005 Collett5 1997 in Osadetz et al 2005 6 Frye et al 2008 in Fire & Ice Spring 2008: p1 www.ngvglobal.com/en/technology/usa-and- 3 Osadetz7 DoE 1998a& Chen 2005 in Osadetz et al 2005 japan-agree-to-joint-methane-hydrate-study- 4 Collett8 MITI/JOGMEC 1995 in Osadetz 1988 et in al Osadetz 2005 et al 2005 01891.html 5 Collett9 NGVGlobal, 1997 in Osadetz “USA and et al Japan 2005 Agree to Joint Methane Hydrate Study”, 23 May 2008. http://www.ngvglobal.com/en/technology/usa-and-japan-agree-to-joint-methane-hydrate-study-01891.html10 http://www.platts.com/Natural%20Gas/Resources/ 6 Frye et al 2008 in Fire & Ice Spring 2008: p1 10 http://www.platts.com/Natural%20Gas/Resources/News%20Features/asiapacificlng/korea.xmlNews%20Features/asiapacificlng/korea.xml 7 DoE 1998a 8 MITI/JOGMEC 1988 in Osadetz et al 2005 to assess the contribution of the marine Mexico, several basins around India, the South microbes to both the methane production and China Sea and the Ulleung Basin offshore Korea. degradation at these sites. Table 3.2 provides a comparison of the spatial 3.2 Comparison with and physical characteristics of some of the key target sites for current gas hydrate research Selected Marine Gas activity. Hydrate Provinces 3.2.1 Nankai Trough, Japan Figure 3.10 illustrates gas hydrate occurrences around the world. The following section presents The extent of the Nankai Trough Gas Hydrate an overview of the five offshore gas hydrate Province, the focus region for Japan’s future provinces that have been drilled as part of offshore gas hydrate exploitation (MH21 2002), national gas hydrate initiatives in recent years: is provided in Figure 3.11. Two exploration the Nankai Trough offshore Japan, the Gulf of drilling campaigns have been conducted revealing significant gas hydrate deposits with
Page 34 Hydrates Options Analysis Figure 3.10: Worldwide occurrences of hydrates (USGS) saturation often over 80% of pore space in consortium is currently the world leader in gas sand-dominated turbidites (Takahashi et al. hydrate exploitation, having commissioned 2001), the most promising type of reservoir both the onshore drilling campaigns through (Boswell & Collett 2006). Canadian Arctic hydrates (the Mallik site, which recently concluded a short run but highly Significant advances have been made in the successful production test; i.e. Kurihara et al. development of reservoir characterization 2008), and the offshore Nankai campaigns. techniques that can be readily employed New Zealand could benefit immensely from elsewhere, such as the interpretation of the Japanese findings due to the geological seismic attenuation and the use of vertical similarity between the Hikurangi Margin and the seismic profiles (A. Sakai, pers. comm., 2006, Nankai Trough. summarised by Pecher et al. (submitted)). It is clear that the Japanese MH21 gas hydrates US Geological Survey; from http://walrus.wr.usgs.govt/glo- balhydrate/
Figure 3.11: Nankai Trough Gas Hydrate Province (USGS)2
NZ Hydrate Resources Page 35 3.2.2 Gulf of Mexico stability zone (BGHS), and the general lack of bottom simulating reflections (BSRs) and Gas hydrates in the Gulf of Mexico (GoM) are continuous reflections from free gas trapped being investigated as part of a Joint Industry at the BGHS. Nevertheless, large gas hydrate Program (JIP) brokered by the U.S. Department deposits have been found near the sea floor as of Energy (DoE 2008; Chevron 2009) and led a result of exploration and development drilling by Chevron. A map indicating the extent of gas into deeper oil and gas reservoirs. hydrate indications in the Gulf is provided in Figure 3.12; while an indication of sites that were drilled in 2005 and scheduled to be drilled 3.2.3 India in April-May 2009 is provided in Figure 3.13. The Indian government commissioned an extensive drilling programme along the east and The initial target of the GoM JIP was gas west coast of India in 2006 (Collett et al. 2006) hydrate production to increase the life-span using the best-equipped drilling vessel for gas of installations above conventional gas fields hydrates exploration, the D/V JOIDES Resolution. (M. Max, pers. comm., 2008 via I. Pecher) – an approach adopted successfully for This programme took advantage of the shallow-gas pockets. Figure 3.14 illustrates the existing availability of densely spaced seismic correspondence of gas hydrate and oil and gas reconnaissance lines, which resulted in the occurrences. discovery of several significant gas hydrate fields, in particular, the Krishna Godavari Geologically, the GoM is quite different from (KG) Basin and a gas hydrate system situated New Zealand in that it is dominated by gravity offshore of the Andaman Islands, as illustrated tectonics, including geologically rapid upward in Figure 3.15. movement of sub-surface salt diapers with associated faulting providing migration pathways While some hydrate fields were detected in for gas and fluids from deep hydrocarbon sand-dominated layers (although the offshore reservoirs (Ruppel et al. 2005). Faulting and Andaman Islands site revealed gas-hydrate- salt also causes distortion of fluid and heat bearing volcanic ash layers), much of the flow, significantly affecting gas hydrate stability hydrate was present in fractured mud stones (Taylor et al. 2000; Ruppel et al. 2005). Locally, – this mode of occurrence seems to set the KG high salinity also reduces gas hydrate stability Basin apart from some other passive-margin (Wright et al. 1999). These effects are thought settings. to lead to a strongly distorted base gas hydrate
Figure 3.12: Gulf of Mexico Gas Hydrate Province (Quarterdeck Vol 5(3): Dec 1997)
Page 36 Hydrates Options Analysis Further studies are planned to test the viability The passive-margin setting of India’s gas hydrate of producing gas from such fractured reservoirs province is different from New Zealand (except (deemed the second-most desirable reservoir for the Andaman margin). However, experience rock for prospectively, (Boswell & Collett, 2006)). gained from gas hydrate production from fractured reservoir rocks may be significant for Extensive exploration surveys are also planned New Zealand because fractured mud stones may in the near future to characterize these gas be a wide-spread host rock for gas hydrates off hydrate deposits, both in fractured reservoirs New Zealand (Pecher et al., 2008). and in sand lobes (K. Sain, pers. comm., 2009).
sites for 2009 drilling other sites considered sites for JIP 2005 drilling
Figure 3.13: Sites of recent and scheduled drilling (April-May 2009) in the Gulf of Mexico Gas Hydrate Province (Rose & Boswell 2008)
Figure 3.14: Map of Texas A&M gas hydrate drill cores with related oil and gas seeps and fields in the Gulf of Mexico (Sassen et al. 1998)
NZ Hydrate Resources Page 37 Figure 3.15: India Gas Hydrate Provinces (USGS3)
3.2.4 China gas hydrate systems in fractures (Riedel et al., A major gas hydrates exploration programme 2008) may be highly significant for evaluating was conducted by China in the South China New Zealand’s gas hydrates. Sea in June of 2007 (Zhang et al. 2007). Figure 3.16 provides the drilling location for this Concluding Remarks programme. In summary, India, China, and Korea have While the results from this programme are still recently joined the U.S. and Japan in the being compiled, one of the surprising findings group of countries with national programs was that while gas hydrate distribution was for gas-hydrate drilling. It appears that for laterally uniform as expected for this passive- geologic reasons, results from the Japanese margin setting, hydrate saturation reached program are still of most significance to New 20-40% of pore space immediately above the Zealand. However, New Zealand could gain BGHS. These saturation are much higher than invaluable information from a number of other on the Blake Ridge for example, where in a programmes. similar undisturbed passive-margin setting, hydrate saturation was only a few percent In the time frame available to us, it was (Holbrook et al., 1996). not possible to explore such opportunities in depth. However, it will be an important 3.2.5 Ulleung Basin, South Korea component of any subsequent work stream. The South Korean Gas Hydrate National Chapter 4 that follows reviews the scope of Programme is centred on the Ulleung Basin in international activities. the East Sea (figure 3.17). The latest research campaign was successfully completed in 3 Retrieved from http://energy.usgs.gov/other/gashydrates/in- November 2007 (Park et al., 2008). diamap.html, 19th February 2009
Gas hydrates were encountered both in coarse-grained, sand-dominated sediments and in fractures. Results from investigating
Page 38 Hydrates Options Analysis Figure 3.16: China Hydrate Province, South China Sea (from Fire & Ice, 2007 Fall Edition)
Figure 3.17: South Korea Gas Hydrate Province, Ulleung Basin (Lee & Chough 2003)
NZ Hydrate Resources Page 39 Page 40 Hydrates Options Analysis 4. INTERNATIONAL APPROACHES TO HYDRATE ASSESSMENT AND DEVELOPMENT Introduction Japan’s early leadership reflects its high energy consumption, very limited indigenous supplies, The discovery of naturally formed hydrates is, in advanced stage of development, and the high fact, very recent, dating from Makogon who in level of state involvement in the energy sector. 1969 first reported the existence of natural gas hydrates beneath the Siberian permafrost. Since Although Japan’s programme is now run by then, numerous gas hydrates deposits have been a state agency-led consortium (MH21 2002), discovered and today, natural gas hydrates are in several of the other relatively developed known to exist in subterranean deposits in Siberia countries (e.g. India, South Korea), the state oil and North America and off the shores of all the companies are very much the driving force. world’s continents (Figure 3.9). Conversely, in the North American countries, Increasing awareness of gas hydrates as an government administrative and scientific energy resource has prompted many of the agencies are involved in consortia with private world’s leading economies (including the United enterprise (and in some cases, as in the Mallik States, Canada, Japan, Korea and India) to project in the Canadian Arctic, with foreign actively engage in hydrate exploration operations entities). in an attempt to quantify their potential energy reserves. For a number of nations whose In all cases, however, Government funding economies are almost totally reliant on imported predominates, via granting arrangements fuels, the discovery of gas hydrates within their and agency budgets, even with private territorial boundaries represents a significant sector participation. The Gulf of Mexico potential improvement to their future security Joint Industry Programme (JIP) is typical of of supply position. A high level comparison of these arrangements, and involves funded the five key international hydrates provinces is participation by Chevron and ConocoPhillips provided in Table 3.1. (U.S. Oil companies), U.S. Geological Survey and Minerals Management Service (U.S. Exploration for gas hydrate deposits relies federal agencies), Total (French oil company), on conventional hydrocarbon surveying Schlumberger (logging company), Reliance technology, including the use of 2-D and Industries (Indian oil company), JOGMEC 3-D seismic surveying to produce Bottom- (Japanese agency), and Scripps Oceanographic Simulating Reflectors (BSRs), and core samples. Institute, Rice University, and Georgia Institute Interpretation of this data has led to a general of Technology (U.S. universities). consensus that the global hydrate resource is truly immense, with estimates varying from 10 to 100 times the known conventional natural gas 4.1 GLOBAL EXPLORATION reserves around the world. ACTIVITY The sections that follow summarise the current 4.1.1 United States state of international exploration activity. The United States has been at the forefront of gas It must be remembered, however, that the hydrate exploration, with significant onshore finds approaches of different countries involved in such as the Alaskan North Slope and offshore hydrates assessment are affected by several discoveries around the Blake Ridge hydrocarbons considerations: fields and in the Gulf of Mexico. Current estimated • Existing national energy market structures; reserves are of the order of 318,000 tcf (Collett 1995) with the Alaska North Slope estimated • Demand versus supply as a principal to contain 590 tcf gas in place (Collett 1997). consideration; The current US government budget for hydrates • Stage of economic development; research is US$165 million per year over five years from 2005 (Osadetz et al., 2005).
International Approuches to Hydrate Assessment and Development Page 41 The Alaskan North Slope project is now a 4.1.2 Canada base of operations of leading research into Natural Resources Canada, a department of the gas hydrate resource development, led by Canadian government and encompassing the the US Department of Energy (US DoE) and Geological Survey of Canada, are responsible for BP Exploration Alaska Inc. (BPXA) Research the exploration and development of Canada’s gas operations in Alaska and in the Gulf of Mexico hydrate resources. Although their motivation for aim to characterize the local gas hydrates gas hydrate exploration is not founded in energy resource; and in the case of Gulf of Mexico, or economic security, Canada continues to actively to investigate the sea floor stability issues survey both on- and offshore hydrate deposits associated with gas hydrates. in the Mackenzie Delta, the Northern Cascadia Exploration in the Gulf of Mexico culminated Margin and the area around Vancouver Island so in 2005 with the conclusion of a 35-day as to better delineate economic resources. Current cruise by the exploration vessel Uncle John, Canadian hydrate estimates are of the order of which sampled and analysed hydrate bearing 1,550-28,600 TCF gas in place (Majorowicz and sediments at two sites known as Atwater Osadetz 2001), with 311 TCF occurring in the Valley 14 and Keathley Canyon 195 (US DoE, Beaufort/Mackenzie Delta (Osadetz and Chen 2008a). A key outcome of this programme was 2005). Canadian research funding is of the order successful demonstration of the capacity to of US$2 million/year over four years (Osadetz et accurately predict hydrates occurrences from al 2005). seismic data; an important addition to helping The research programme at Mallik has involved locate gas hydrates in the future. Additionally, some 265 scientists from more than five countries the US DoE actively participates in hydrates (including Japan, Canada, USA, Germany and research and exploration worldwide. India), who together completed more than 63 More information on hydrates activity in the US separate research programmes. In April 2008, may be found in Appendix 4. the production test well at Mallik successfully produced commercial quantities of gas over a 6 day production run.
Mean Estimates Percentage Plays (Trillion Cubic Of Total feet. Tef) U. S. Resource
Atlantic Ocean Province 51,831 16.1 - Northeastern Atlantic Ocean Play 30,251 9.4 - Southeastern Atlantic Ocean Play 21,580 6.7
Gulf of Mexico Province 38,251 12.0 - Gulf of Mexico Play 38,251 12.0
Pacific Ocean Province 61,071 19.1 - Northern Pacific Play 53,721 16.8 - Southern Pacific Play 7,350 2.3
Alaska Offshore Province 168,449 52.6 - Beaufort Sea Play 32,304 10.0 - Bering Sea Play 73,289 23.0 - Aleutian Trench Play 21,496 6.6 - Gulf of Alaska Play 41,360 13.0
OFFSHORE PROVINCES TOTAL 319,602 99.8
Alaska Onshore Province 590 0.20 - Topset Play-State Lands & waters 105 0.034 - Topset Play-Federal Waters 43 0.013 - Fold Belt Play-State Lands & Water 414 0.13 - Fold Belt Play-Federal Waters 28 0.011
ONSHORE PROVINCES TOTAL 590 0.20
UNITED STATES TOTAL 320,192 100
Figure 4.1: USGS estimates of the United States in-place gas resources within gas hydrates (from US DoE 1998a)
Page 42 Hydrates Options Analysis 4.1.3 Japan MITI/JOGMEC studies have estimated that Japan possesses an estimated hydrates resource A major leader in hydrate exploration and endowment of 1,7665 tcf (Osadetz et al 2005). assessment, Japan’s research budget has been estimated at approximately US$50 million More information on hydrates activity in Japan per annum by US DoE (Osadetz et al 2005), may be found in Appendix 4. a research effort that until recently exceeded the budgets of all other national programmes 4.1.4 India combined. The Japanese National Oil and Gas India, the fifth of the ‘big five’ major players in Company (‘JNOC’, now the Japanese Oil, Gas and hydrates exploration established its programme Metals National Corporation ‘JOGMEC’) have had in 2006 following the successful conclusion an early and active involvement in the Mallik of a 4 month resource estimation programme production test operation. of the Krishna-Godavari and Andaman-Nicobar A seven-year exploration phase followed islands in using the research vessel JOIDES an initial hydrates discovery in 1999. This Resolution. The results of this expedition exploration programme yielded what is thought were very positive for the Indian National Gas to be the world’s largest single offshore hydrate Hydrate Programme (NGHP), with USGS calling deposit (39 tcf) in the Nankai Trough in 2001. the discovery “some of the richest marine gas For Japan, this confirmation of indigenous hydrate accumulations ever” . The exploration hydrocarbon resources was sufficiently programme also established the existence of motivating to embark on a 15-year hydrate a fully developed gas hydrate system in the development plan, which anticipates beginning Mahanadi basin off the Bay of Bengal. These commercial production in 2016. A short but discoveries have led to the establishment of successful production test at the Mallik site a gas hydrates ‘mission’ in India, one step using conventional technology in April 2008, behind the establishment of a ministry for though tested in an onshore setting, has further hydrates (Mukherjee, pers. comm. 2009). stimulated planning in Japan for offshore hydrate Estimates by India’s Oil and Natural Gas production. While the timing of any future Corporation (ONGC) in 1997 suggested that the Japanese offshore production test is uncertain, its drilling programme continues. http://energy.usgs.gov/other/gashydrates/india.html. Retrieved 15th April 2009
Figure 4.2: Map of Nankai Trough hydrate resource area (USGS)
International Approuches to Hydrate Assessment and Development Page 43 Figure 4.3: Map of key hydrate deposits explored during the Indian NGHP Expedition 01 (USGS) size of India’s in-situ resources at around 4,307 tcf sovereignty of Dokdo/Takeshima island and (Osadetz et al 2005). The reported total budget the surrounding waters. Preliminary Japanese of the Indian programme is US$56 million over surveys suggest that the hydrate deposit in five years. More information can be found in this region is even more promising than the Appendix 4. Nankai Trough deposit, if not for size then for ease of potential extraction. 4.1.5 South Korea More information on hydrates activities in South Korea’s recent discovery of gas hydrates South Korea may be found in Appendix 4. in the Ulleung Basin region of the East Sea (Sea of Japan) has greatly encouraged further 4.1.6 Other Regions exploration and development by that country. Estimates of research budgets are uncertain The successes of these exploration efforts but could be as high as $US50 million/year. have inspired many other nations to begin As much as US$67 million has been expended investigation of their own territorial waters to date in initial exploration activity and the in the hope of finding hydrate deposits, South Korean Government has earmarked a including New Zealand. In 2007, China reported further US$243.5 million for the project until extracting hydrate-bearing core samples from 2014. the South China Sea and now have a major research programme underway. Russia, Norway The Korean discoveries represent approximately and Chile have also identified potential or 30 years of that nation’s current natural gas confirmed hydrate resources. Other known consumption. Of particular interest in the deposits have vague territorial delineation, Korean situation, exploration and development such as in the Bering Sea and the Atlantic is hindered by an ongoing territorial dispute Outer Continental Shelf. between Japan and South Korea over the
Page 44 Hydrates Options Analysis 4.2 CHARACTERISATION The study consisted of seismic survey measurements, core logging and temperature AND APPRAISAL measurements, and modelling the results to As with conventional oil and gas resources, determine the local hydrate stability zone economic extraction of a hydrate deposit in relation to the geography of the area; will require a unique combination of specific and consequently the optimal production parameters. These include all petroleum system parameters for the field. components and favourable economics and recovery potential (Hunter 2004). Fundamental The investigation was able to determine that to this is a characterization and appraisal of the field was supported by an external source the field in question. This involves identifying of pressure, indicating the presence of an the geographical, geological, physical and aquifer running through the hydrate zone or chemical properties of the field, and how some hydrate decomposition in situ. This these properties change over the area of evidence was used to construct a model of the field (i.e. reservoir heterogeneity) and the hydrate zone that could later be used for the anticipated duration of extraction. By anticipating the gains from methane recovery determining these parameters, an economic from hydrate. evaluation of the cost of extraction and the value of the resource can be made. 4.2.2 Offshore India Methane Hydrate Deposits (after Kumar 2008) Detailed surveys of several major gas hydrate Several gas hydrate deposits have been mapped deposits have been undertaken to refine initial and sampled from four locations from both the estimates and to more accurately determine east and west coasts of India (Figure 4.3). Of the technically recoverable (TRR) and economically 39 holes cored at 21 separate sites, 130 samples recoverable (ERR) resources (Boswell 2005). were taken and investigated using advanced These surveys make use of advanced scientific laboratory techniques, including Raman laser tools, from bottom-simulating reflectors spectroscopy, 13C-NMR and X-Ray Diffraction, in (generated by seismic surveys) to determine order to determine the molecular composition and the structure and density of the sea floor and structure of the hydrate deposits thereby, allowing hydrate-containing sediments, to Raman laser a more accurate characterisation of the resource spectroscopy and 13C-NMR for characterizing extraction potential and overall extraction the extent of the hydrate saturation and the economics. composition of the stored natural gas. It was found that all cores showed methane was Some examples of notably recent work in the dominant gas component of the hydrate this area, presented at the 6th International deposits, entrained as structure-I hydrate. This Conference on Gas Hydrates in July 2008, are permits the assumption that dissociated water summarised below. These are illustrative of from hydrate extraction will amount to roughly the extent of investigations being undertaken 6 times the natural gas extracted. Further study internationally to improve understanding of revealed that of the two ‘cage’ sizes that the methane hydrate resource potential. hydrate molecules form, the larger size was more than 99% occupied with methane, while the 4.2.1 Barrow Gas Field, Alaskan North smaller cage was occupied between 75 and 99%. Slope (after Walsh 2008) The Barrow Gas Fields are an existing resource 4.2.3 Alaminos Canyon Block 818, Gulf site on the North Slope Borough of Alaska, a of Mexico (after Latham 2008) region with abundant hydrocarbon resources. A seismic survey of this deep water An investigation was conducted in order to (approximately 3000m) Gulf of Mexico site, quantify the resource potential of the gas revealed a bottom-simulating reflector at hydrate layer associated with the developed approximately 460m below the sea floor – a fields. BP Exploration Alaska headed the preliminary indication of a methane hydrate investigation. deposit. A core was drilled in order to confirm the hydrate presence.
International Approuches to Hydrate Assessment and Development Page 45 Results from the core drilling between 3212m The Mallik site in the Mackenzie Delta, seen and 3475m below sea level (mbsl) indicated a in Figure 4.4 from the USGS website, has gradual increase in methane concentration in become the poster-project of hydrate extraction associated gases up to around 20% at around development (Yamamoto 2008). Following 3300m, which then gradually decreased back initially successful trials in 2002, the Mallik to less than 1%. The core sample was also able project has operated as an internationally to determine the range of geological materials partnered production test well programme in the sea floor and their average particle between seven participating entities. The sizes, which is very important information for Winter 2002 trial at Well 5L-38 produced the potential drilling operator. Seismic p- and 470m of natural gas over five days, using s-wave velocity measurement also established well depressurization coupled with thermal the average density of the sea floor layers. stimulation (injecting hot water or steam into the well to promote decomposition). This was the first trial of natural gas production from a 4.3 ENGINERING AND hydrate reservoir. PRODUCTION Following the reestablishment of the In addition to the above several industry older 2L-38 well, a second trial in the and research groups have begun actively winter of 2007 lasted for 60 hours, with investigating the engineering and production a continuous production of 830m of gas methods behind methane extraction from over a 12.5 hour period. This trial used hydrates. Whilst conventional hydrocarbon only well depressurization as an extraction extraction techniques are directly applicable process, omitting the previous use of thermal to methane recovery, the particulars of well stimulation. performance and bottom hole completions has emphasised in-situ dissociation techniques A third trial at the same well in March 2008 involving depressurisation, thermal injection resulted in the world’s first continuous and inhibitor injection. The success of production run, producing a total of 13,000m production testing at Mallik has been an of gas over a six day period, with 2000-4000m important milestone for evaluation of these produced per day. techniques and the likely production issues To date, Mallik has been the only successful that could govern commercial operation and recovery. Retrieved from http://energy.usgs.gov/other/gashydrates/ mallikmap.html, 19th February 2009
Figure 4.4: Mallik location map (USGS)
Page 46 Hydrates Options Analysis gas-from-hydrates production trial, although are also actively involved in developing new many more are in the pipeline, including a production methods, including sea floor mining planned trial to be run by ConocoPhillips and Low-Dose Hydrate Inhibitor (LDHI) Injection, at a site on the Alaska North Slope, to test which involves injecting known hydrate inhibitors carbon dioxide injection and sequestration such as methanol and ethylene glycol into the as a revolutionary extraction technology (US wellbore to stimulate hydrate decomposition. DoE 2008b). The technology, proven to have Japan leads the way in this area of hydrate some success at laboratory scale, is particularly extraction technology owing to their long-term appealing because the carbon dioxide injection involvement through JOGMEC with the Mallik process creates heat through the chemical trials. Although India and South Korea have reaction of formation of CO2-hydrates. This declared their intentions to develop hydrate heat is in turn delivered to the existing extraction technology through similar industry methane hydrates, improving methane recovery. partnerships, Japan’s lead over the other major It also allows carbon dioxide to be sequestered nations appears to be significant. in a thermodynamically stable way. Overall, the development of extraction The first phase of the 27-month project processes applied to gas hydrates is commenced in October 2008 and aims to find proceeding with vigour and considerable and secure a suitable location for the field research has been generated internationally. test. Following a period of detailed planning Generally it has been found that no one and numerical modelling, a field trial of the method is superior in all circumstances and laboratory-verified process is planned for that the selection of the most appropriate initiation in January 2010. method will depend on the physical and As previously indicated, it is predicted that geological conditions present. the first offshore pilot and commercial scale production tests could well take place in the Nankai Trough off Japan’s main islands. 4.4 ECONOMICS Simulation analysis based on the Mallik test data As will be obvious from the previous and applied to one concentrated zone of the discussion, given the state of the industry Eastern Nankai Trough reveals that the potential and scientific knowledge of gas hydrate gas production rate from a single well using production, there is no simple answer to the just wellhead depressurization could exceed question of the likely commercial viability if 50,000 m3/day (MH21 2008). Japanese researchers gas hydrates recovery and production. Every Internal Rate of Return
Figure 4.5: Indicative internal rates of return for a 500MMscf/d hydrate development. No royalties pre-tax. (Hancock 2008)
International Approuches to Hydrate Assessment and Development Page 47 field development will stand on its own merits 4.5 LESSONS FOR NEW and commercial drivers will differ according to market and regional energy security issues. ZEALAND Industry itself remains very much silent on the 4.5.1 New Zealand Capacity to Support issues of commerciality until technical viability a Gas Hydrates Resource Programme is further proven and demonstrated. New Zealand’s motivation in focusing on the The Gas Hydrates Economics Working Group, potential of its hydrate resources arises from its a collaboration between several North substantial endowment, disproportionate to the American university, research and government scale of our economy, and the potential wealth participants, has perhaps undertaken some of that would become available from unlocking the the more robust analysis of the requirements resource potential. It is not realistic to anticipate for commercial production. Their analysis, that New Zealand will have the resources to which draws on the results and learnings from autonomously advance commercialization different North American research programmes of its hydrate resources. Compared to other as well as industry Gulf of Mexico experience, similar economies, New Zealand lacks a state aims to provide a comparative assessment oil company as well as a base of large-scale of gas hydrate and conventional gas field industrial energy sector interests capable of development (Hancock 2008). investing in such a project.
The key issues identified are the realities of New Zealand does, however, have the capacity having to operate gas hydrate fields below the to support and participate in significant resource typical abandonment pressure for conventional development opportunities. Large companies gas reservoir production, the much higher engaged in production and wholesale supply water production rates that exist and flow of thermal fuels include Shell (multi-national), assurance from wellhead to production. Todd (private New Zealand firm), OMV (Austrian), Origin (Australian public company, also Preliminary findings and analysis undertaken cornerstone shareholder in Contact Energy), by the group suggests that the potential Vector, (mainly consumer trust-owned); and for commercial hydrate production is very State Owned Enterprises (SOEs) such as Genesis encouraging. Whilst the straight up economics Energy, Mighty River Power, and Solid Energy. of hydrates production will always be less It is also worth noting that several Asian than that from a comparable conventional gas companies are already engaged in oil and gas reservoir, the absence of any apparent barriers exploration (and in one case, production) in New to using conventional technology, and the Zealand – Japan’s Mitsui, PTTEP of Thailand and advancing knowledge of deep water production South Korea’s Hyundai Hysco. in inherently unstable conditions offers considerable prospect for future commercial It is unlikely that any individual or coalition demonstration of the technology. Security of of the above would move aggressively to supply issues and likely government incentives stimulate gas hydrate appraisal without in support of national energy policy will be considerable stimulus from central government used to offset the marginal economics. – the likelihood of capturing due benefits in a reasonable timeframe is too uncertain. Even in The economic horizons derived for a stand much larger and resource-oriented economies alone deepwater gas hydrate development of such as Australia, Canada and the USA, it has 500 MMscf/d nominal capacity are set out in only been with government (in some cases Figure 4.5. A more comprehensive discussion e.g. Mallik, foreign) leadership that effective of the economic feasibility of an offshore New initiatives such as Joint Industry Projects have Zealand gas hydrates development is provided secured some industry participation. in Chapter 5. New Zealand’s proprietary and strategic interests in our marine gas hydrate resources are well secured by the Crown Minerals Act, and our rights under the United Nations Convention on Law of the Sea. These frameworks also call for
Page 48 Hydrates Options Analysis commercial development and thus open up the successful production test offshore at a Nankai opportunity for New Zealand to take a proactive Trough site 50km off the Japanese coast, followed stance in development of its hydrates resource. by the establishment of what will be the first offshore commercial hydrate production site in Opportunities have already arisen for foreign 2016. participation in New Zealand‘s science effort (notably the German RV Sonne cruise in 2007), 4.6.2 Gulf of Mexico JIP – Chevron and another major international campaign to Energy Technology Company study four possible gas hydrate fields with state-of-the-art geophysical, geochemical and The primary aim of the Gulf of Mexico JIP is microbiological techniques is already planned (i.e. to “develop technology and data to assist in RV Sonne, 2011). Extending these efforts to be the characterization of naturally occurring gas more strongly aligned with international activities hydrates in the deep water GOM” [US DoE, seems an obvious way forward. 2008a]. It is strongly motivated by the interest in increasing safety associated with deep-water 4.6 ALIGNMENT WITH drilling in hydrate stability zones. Additionally, INTERNATIONAL ACTIVITIES “the activities undertaken in the project will significantly advance hydrate science and the In nearly all cases, international hydrate technologies employed in studying hydrates in development activities have involved a the field, providing valuable tools and insights consortium of commercial, governmental and to researchers on many fronts of the methane academic groups, often from many different hydrate issue, including hydrate’s role in global countries. These collaborations have been climate and its long-term potential as a supply responsible for the major hydrate discoveries in source for natural gas” [ibid.]. North America and the first production trial at Mallik in the Canadian Northwest Territories. Other 4.6.3 Alaskan North Slope JIP bilateral arrangements exist between countries – ConocoPhilips and BP Exploration participating on smaller research and exploration Alaska projects. The Alaskan North Slope is an existing onshore hydrocarbon development with the potential to New Zealand’s future success in developing the become the first onshore hydrates production methane hydrate resource will rely on similar site, owing to the existing expansive and well international cooperation with experienced supported infrastructure. A site in the North Slope organizations. Outlined below are summary field has been chosen for a ConocoPhilips hydrate details of three such ventures. extraction trial using carbon dioxide injection (US DoE, 2008b). As this method of extraction is still 4.6.1 Mallik 2002 Production Well Test very much at a development stage, the technical Programme - JOGMEC risks are considerable and thus some doubt exists This international science and engineering as to the likelihood of a successful outcome. research partnership, managed by the Geological Survey of Canada, brought together the Japanese Oil and Gas Exploration Company (JAPEX), the 4.6 Concluding Remarks then - Japanese National Oil Company (JNOC, Given the similarity of New Zealand’s resource now the Japanese Oil, Gas and Metals National potential compared to Japan’s, involvement Corporation: JOGMEC), the US Geological Survey with JOGMEC’s consortia and future projects (USGS) and US Department of Energy/National will yield indispensable and appropriate Energy Technology Laboratory, along with several knowledge and skills that can be applied to other contributors, to perform a production test New Zealand projects. on the known sub-permafrost hydrate resource. The success of this first test and the six years of The information collected by this ongoing research and development following it resulted investigation will be directly applicable to the in the consortium reforming for the world’s first recovery of hydrate resources in New Zealand; continuous production test. Using the knowledge consequently a New Zealand representative in gained from Mallik, JOGMEC’s next objective is a the JIP would be highly desirable.
International Approuches to Hydrate Assessment and Development Page 49 Involvement in the North Slope JIP would potentially yield strong political capital and set a positive example globally for the recovery of fossil fuels without the environmental burdens so associated. Involvement would also introduce New Zealand to potential customers of any hydrate-sourced natural gas exports, such as South Korea, who with modest hydrate resources under territorial dispute may seek security in a friendly nation’s supply.
Page 50 Hydrates Options Analysis 5. OPPORTUNITY ANALYSIS
5.1. HYDRATES WELL is located approximately 22km offshore of the south Wairarapa Coast. Hydrates have been DEVELOPMENT PLAN identified from seismic surveys approximately 5.1.1 Introduction 300m below the seabed at water depths of 1000m (Pecher and Henrys 2003); and gas Transfield Worley Services were commissioned hydrate has been sampled from the sea floor to produce a high level well development plan at this location by NIWA’s vessel Tangaroa. for the Wairarapa gas hydrate ‘sweet spot’ site on the East Coast of the North Island of New A ‘sweet spot’ with estimated hydrate volume Zealand (covered in previous chapters). of between 0.04 to 0.5 tcf (Pecher 2006), this site is expected to be a model candidate for Transfield Worley Services’ extensive and exploring the future development and production ongoing role in the development of the of methane from hydrates in New Zealand due Taranaki exploration and production sector to hydrate concentration at the site and its was expected to provide the most robust and proximity to shore and a major demand centre comprehensive data on New Zealand oil and in Wellington. Although this site has been well gas projects for the well development plan surveyed and is relatively well understood and for the subsequent economic analysis from geological, geophysical, ecological and component of this study. oceanographic perspectives as seen in Figure 5.2 (Barnes et al., in press; et al., 2009; Schwalenberg 5.1.2 Methodology et al., submitted; and others), it has yet however to have been subjected to ground-truthing or The prospective location for the well resource characterisation. Better quality seismic development is at the Opouawe Bank data are still required from this location. This lack (referred to commonly as the “Wairarapa site”) of certainty is reflected in contingency rates that illustrated in Figures 5.1 and 5.2, where a BSR have been applied to the cost estimates in this sweet spot and numerous methane-rich fluid analysis. seeps occur. The Wairarapa ‘sweet spot’ site
“Sweet spot” within about 20km of southern North Island shore
Figure 5.1: Wairarapa (Beggs, Hooper and Chong 2008)
Opportunity Analysis Page 51 Figure 5.2: A. Major tectonic and geomorphic features associated with the Wairarapa seep sites at Op- ouawe Bank. Bathymetry. From Barnes et al. (in press).
The basis for the Transfield Worley Services considerations taken into account in bringing well development plan was Hancock’s paper to this scheme together are attached as the 2008 New Zealand Petroleum Conference, Appendix 6. which illustrated the differences between a conventional gas and a modelled hydrates well Preliminary Development Plan development. The 3 phases of development envisaged for the Wairarapa well development plan are Cost estimates were then derived summarised in Table 5.1. The development independently from Transfield Worley Services’ schematics underlying this plan are cost database for New Zealand oil and gas provided in Appendix 6. projects, and complemented where required by recourse to their international databases. Phase 1: Preliminary Proving/Testing Phase This phase is built around a 9 month 5.1.3 Preliminary New Zealand Hydrate programme involving a blue-water rig and Well Development Plan associated support vessels. This approach A simplistic gas hydrate well development plan provides a degree of flexibility to the project is illustrated below. The rationale and various by allowing mobility and flexibility to drill new
Page 52 Hydrates Options Analysis Figure 5.2a: Notional Gas Hydrate Field Development Plan (Hancock 2008) wells if required. It is also assumed that the rig ten year time frame is envisaged. The cost will have onboard the requisite process testing estimates provided in Table 5.3 include costs for equipment. Cost estimates for this phase are equipment at both scales, which will be installed provided in Table 5.2. at the commencement of the development. This approach addresses anticipated difficulties of In this analysis, a rig rate of $250k per day getting a work barge on site when it may be has been assumed. The historical daily rate for required (due to strong demand elsewhere in a rig capable of working at the 3000-4000ft the world) and also mobilisation/demobilisation depth range has varied from US$80 per day in costs for the work barge, which can easily exceed 2004 to US$420k per day in late 2008 when US$25m before any work is actually commenced oil was over $150/bbl. but has slipped recently in New Zealand waters. to $320k per day and is not unreasonable to expect that a lower rate could be negotiated This 10 PJ scale facility is expected to service f me as envisaged. a single cluster of 6 wells, with the resulting hydrate derived methane pumped onshore for Phase 2: 10 PJ Appraisal and Testing use in the domestic market. A new pipeline will In this phase of development, a 10 PJ facility be required to connect to the 8in grid serving intended to be scaled up to 150 PJ over a Hawkes Bay.
PHASE COST ESTIMATE (real 2009 NZ$)
1. Preliminary proving and testing, including site selection NZ$322m
2. 10 PJ appraisal and testing NZ$1,362m
3. 150 PJ development and production NZ$2,879m
Total NZ$4,563m
Table 5.1: Gas Hydrate Capital Cost Estimate Summary
PHASE 1 DESCRIPTION COST Opportunity Analysis ESTIMATE* Page 53
1.1 Appraisal & Testing Appraisal for test programme $12m
1.2 Preliminary Drilling & 2 offshore wells @ $5m ea; $310m Testing Single blue-water drilling rig on-station for 9 months @ $250,000/day; Two support vessels for 9 months @ $50,000/day;
Total $322m
PHASE 2 DESCRIPTION COST ESTIMATE*
2.1 Appraisal & Development Project Management, Engineering & Quality Control; $66m Operations and commissioning costs; Insurance
2.2 Drilling Well engineering, subsurface studies and completion $476m of a single cluster of 6 wells; Mobilisation and demobilisation of the drilling rig(s);
2.3 Offshore Facilities Location on-site of the topside facility; $714m Construction of sub-sea pipelines and umbilicals to topside facility and onshore;
2.4 Onshore Facilities Construction of an onshore receiving station and 1st $106m gas pipeline to connect to the National Grid
Total $1,362m
PHASE COST ESTIMATE (real 2009 NZ$)
1. Preliminary proving and testing, including site selection NZ$322m
2. 10 PJ appraisal and testing NZ$1,362m
3. 150 PJ development and production NZ$2,879m
Total NZ$4,563m
PHASE 1 DESCRIPTION COST ESTIMATE*
1.1 Appraisal & Testing Appraisal for test programme $12m
1.2 Preliminary Drilling & 2 offshore wells @ $5m ea; $310m Testing Single blue-water drilling rig on-station for 9 months @ $250,000/day; Two support vessels for 9 months @ $50,000/day;
Total $322m
* NZ$ in 2009 Real Terms
TablePHASE 5.2: Capital Cost Estimates for Phase 1 – Preliminary COSTProving ESTIMATE & Testing PHASE 2 DESCRIPTION (real 2009 NZ$) COST Phase 3: 150 PJ Development and Testing offshore facilities and at the landfallESTIMATE* receiving
1. Preliminary proving and testing, including sitestation selection are providedNZ$322m in Appendix 6. Over2.1 aAppraisal 10 year time & Development frame, production Project will be Management, Engineering & Quality Control; $66m ramped up to 1502. PJ 10 utilizing PJ appraisal the processing and testing NZ$1,362m Operations and commissioningBasic costs;Subsea Well and Pipeline Layout equipment already installed. An additional 4 3. 150 PJ developmentInsurance and production NZ$2,879m clusters of 6 new wells, or a total of 30 wells, The proposed layout of the subsea wells for will2.2 be Drilling drilled to meet this rate of production.Well engineering, It subsurfaceboth studies theTotal 10 andPJ and completionNZ$4,563m 150 PJ cases is$476m based is also assumed that due to the characteristicsof a single cluster of 6 wells;on that suggested in the Hancock report of the hydrate reservoir, wells will needMobilisation to be and demobilisationand shown of the in drilling Appendix rig(s); 6 and Figure 5.2a replaced on a 10 yearly basis and have been previously. 2.3PHASE Offshore 1 Facilities DESCRIPTIONLocation on-site of the topside facility; COST$714m costed accordingly, as set out in Table 5.4. ESTIMATE* Construction of sub-sea pipelinesSelection and of umbilicalsProduction to “Platform” topside facility and onshore; Basic1.1 AppraisalProcess &Description Testing Appraisal for test programmeWith water 1000m deep, conventional$12m offshore The2.41.2 basic OnshorePreliminary process Facilities Drilling is to reduce& the2Construction offshorepressure wells of @ an $5m onshore ea; jacket receiving supported station structures, and 1st $310mlike $106mMaui for Testing in each well by removing gas andSingle gasliquid, pipeline blue-water thus to connect drilling rig to example, on-stationthe National arefor 9Gridout months of the question. Three @ $250,000/day; potential proven solutions could be employed: causing more hydrate to dissociateTotal into gas $1,362m and free water. This process will beTwo enhanced support vessels for 9 monthsa) a tension @ $50,000/day; leg platform (TLP); b) a floating production unit (FPU), which is basically a by chemicals and the waterTotal produced will also $322m need to be removed. Process sketches for both moored, converted tanker; or c) a SPAR. As there isn’t a great difference in cost between
PHASE 2 DESCRIPTION COST ESTIMATE*
2.1 Appraisal & Development Project Management, Engineering & Quality Control; $66m Operations and commissioning costs; Insurance
2.2 Drilling Well engineering, subsurface studies and completion $476m of a single cluster of 6 wells; Mobilisation and demobilisation of the drilling rig(s);
2.3 Offshore Facilities Location on-site of the topside facility; $714m Construction of sub-sea pipelines and umbilicals to topside facility and onshore;
2.4 Onshore Facilities Construction of an onshore receiving station and 1st $106m gas pipeline to connect to the National Grid
Total $1,362m * NZ$ in 2009 Real Terms Table 5.3: Capital Cost Estimates for Phase 2 – 10 PJ Appraisal & Development
Page 54 Hydrates Options Analysis
PHASE 3 DESCRIPTION COST ESTIMATE*
3.1 Appraisal & Development Project Management, Engineering & Quality Control; $132m Operations and commissioning costs; Insurance
3.2 Drilling Well engineering, subsurface studies and completion $1,796m of a further 4 clusters of 6 wells; Mobilisation and demobilisation of the drilling rig(s)
3.3 Offshore Facilities Sub-sea pipelines $221m
3.4 Onshore Facilities Construction of the 2nd gas pipeline to connect to the $320.3m National Grid
Total $2,879m * NZ$ in 2009 Real Terms Table 5.4: Capital Cost Estimates for Phase 3 – 150 PJ Development & Production
all three, a decision was made to only cost 5.2 ECONOMIC ANALYSIS out a TLP. More information on the differences between the platforms may be found in 5.2.1 Introduction Appendix 6. A national economic cost-benefit analysis has been undertaken to demonstrate the potential Technical and project data on worldwide for the development of New Zealand’s gas applications of SPARs and TLPs, including hydrate resource endowment to provide a deployment time frames from discovery to first viable, economically competitive alternative or gas, may also be found in Appendix 6. replacement for indigenous and imported fuels/ Development Schedule gas. The full study is provided as Appendix 7.
The similarity of the technology envisaged This analysis is also intended to demonstrate the for this hydrates development with other potential economic value of government policies conventional offshore projects utilizing TLPs, designed to accelerate the development of New FPUs or SPARs, the time scales given in Zealand’s hydrate resource, and to determine if Appendix 6 provide a good indication of the export of methane from hydrates as LNG is expected project timing. likely to add further value.
A small to mid-sized TLP or SPAR is envisaged for the 10 PJ scaling up 150 PJ production 5.2.2 Methodology facility. Hancock proposed using a FPU (floating The economic analysis adopted for this study production unit) which is also practical and is based on the methodology outlined in Trea- feasible. sury’s Cost Benefit Analysis Primer , and utilised key parameters from MED’s Cost-Benefit Analysis Although considerably more study will be of the New Zealand Energy Strategy, including: required to arrive at an optimal selection for a US$/NZ$ exchange rate of 0.54, an oil price of a topside facility, the hard data tabulated US$60/bbl and an international price for methane, in Appendix 6 suggests that for a small to derived from the LNG price formulae developed medium TLP, a 30 month study period will for MED by Gary Eng. Internal transfers such as be required to arrive at a final investment The Treasury, 2005. Cost Benefit Analysis Primer v1.12. Url: decision. http://www.treasury.govt.nz/publications/guidancecostben- efitanalysis/primer Furthermore, the data also suggests that the total project duration from discovery till first Energy Modelling Group, MED, 2007. Benefit-Cost Analysis of the New Zealand Energy Strategy. Url: http://www.med. gas under the assumptions above is about 70 govt.nz/templates/MultipageDocumentTOC____31983.aspx months. Eng, G. 2008. A Formula for LNG Pricing [Updated 26
Opportunity Analysis Page 55 NZ$/GJ
Figure 5.3: Comparison of Unit Cost of Production for a 300 PJ Development at different discount rates
royalties, taxation and payments between com- currently available in the public domain. However, mercial entities involved in the project scenarios it should be noted that in the absence of a have, however, been excluded from the analysis. commercial precedent upon which to base these Economic costs and benefits throughout the costs estimates, they are subject to considerable analysis are in real 2008 NZ dollars and exchange uncertainty. rates have been held constant. Unit costs of production have been calculated Simplified scenarios using fixed methane values for both a hydrates scheme and a comparable and assumed scales of development at the 10 PJ, conventional offshore natural gas development. 150 PJ and 300 PJ have been used to illustrate These have been calculated at the production the impact of key assumptions and uncertainties price the project would have to receive for on the economic analysis. Additionally, a the methane to achieve an economic internal ‘composite’ scenario, which envisaged the rate of return of 5% or an arbitrarily selected development of a 10 PJ ‘proving project’ as a ‘commercial’ rate of 15% on a real dollar, before precursor to a major 300 PJ facility serving both tax basis. Figure 5.3 illustrates the difference in domestic and export markets within a 10 year calculated unit cost of production using the same time frame, has been used to illustrate a probable costs but at the two different discount rates for a staged development pathway. 300 PJ hydrate development. By comparison, the unit cost of production for indigenous natural gas The cost estimates used for the scenarios have has been calculated at NZ$2.50/GJ. been derived from Hancock’s presentation to the 2008 New Zealand Petroleum Conference We note that this analysis has not investigated and independently corroborated by Transfield the price effect on gas consumption, and it Worley Services using their cost database is has been assumed that the availability of for conventional sub-sea oil and gas field gas hydrate will not change the current rate of developments in Taranaki. These estimates consumption. Any national benefit arising from probably reflect the most advanced gas hydrate higher consumption of gas will be relatively small estimates for a New Zealand development compared to the benefit arising from reduced gas costs, and thus will tend to underestimate the net November 2008], Ministry for Economic Development. Url: benefits somewhat. http://www.med.govt.nz/templates/MultipageDocument- TOC____39562.aspx
Hancock, S. 2008. Development of Gas Hydrates. Presen- 5.2.3 Development Scenarios tation to the 2008 New Zealand Petroleum Conference. Four scenarios have been developed to
Page 56 Hydrates Options Analysis
Scale Hydrate End Use Basis for inclusion Disassociation5 10 PJ pa 1.5m tonnes Feedstock for 200MW To illustrate the economics of small scale scale thermal development, where it is likely that hydrates generation or will be competing against indigenous petrochemicals natural gas. To provide the basis for costing the “proving” phase of the staged development.
150 PJ pa 22.5m tonnes Equivalent to the To compare production of hydrates with the entire New Zealand importation of LNG, the most likely gas market (excluding replacement fuel in a longer term supply existing methanol constrained domestic gas market. capacity)
300 PJ pa 45m tonnes Will provide 5.4m To illustrate the economics of exporting tonnes of methane for methane extracted from hydrates domestic use and export as LNG
Composite 10 PJ proving project To illustrate an economically optimal expanding to 300 PJ hydrate development pathway production over 10 years
Table 5.5: Development Scenarios demonstrate the anticipated economics of small 5.2.4 LNG Prices and large scale production of gas hydrates and Scenario Composite 10 PJ/C CompositeMethane produced 10 PJ/S from hydrates300 and PJ exported also any benefits from exporting methane. Cost of Production $3.67 to international$3.60 markets will be $3.47shipped out Two cases have NZ$/GJ been used for the scenarios of New Zealand as LNG or Liquefied Natural above to demonstrate the potential economic Gas. The value of this methane to the hydrates benefits from accelerating the commencement of development project is the FOB price of the Guandong Current Guandong Current Guandong Current production fromLNG CIFhydrates (Import) by bringing forward the LNG, less the cost of liquefying the methane. As Price in NZ$/GJ New Zealand LNG is likely to be shipped to the first production date of hydrates: $11.41 $19.08 $11.41 $19.08 $11.41 $19.08 large East Asian markets, the FOB price in New • The “business-as-usual” (BAU) Guandongcase for Current Guandong Current Guandong Current LNG FOB (Export) Zealand will be the East Asian CIF price, less each scenarioPrice in assumes NZ$/GJ that the absence $6.13 $13.80 the$6.13 freight from$13.80 New Zealand$6.13 to East Asia.$13.80 It is of specific initiatives to actively facilitate also assumed that the CIF price of LNG in New the development of New Zealand’s hydrate Zealand will be similar to that in East Asia as the resource would result in New Zealand IRR under Base 15.4% 23.2% 16.3%transport distances25.0% from 17.4%likely suppliers26.9% will be receivingCase low Assumptionspriority from potential investors and energy companies, lag behind the of a similar magnitude, making the New Zealand
development of hydrates in other larger FOB price equal to the CIF price, less the ocean economies and result in the country effectively transport costs to East Asia. This transport cost
becoming one of “the last cabs off the rank”. has been set at US$0.80/GJ, the same as the This case assumes that hydrates production cost of liquefaction. will not occur before 2040; LNG prices used in this analysis have been • The “accelerated development” case is derived from formulae published by Eng (2006, intended to test whether there are potential 2008) for MED, and are intended to provide a economic benefits in accelerating the introduction of the technology, particularly proxy value for the methane when the ‘backstop’ alternative fuels for the New Zealand market are expected to be Beggs, M. et al (2008). Gas Hydrates Road map. GNS Science Report SR2008/06 significantly more expensive. Eng, G. 2008. A Formula for LNG Pricing [Updated 26 November 2008], Ministry for Economic Development. A more detailed description of the key Retrieved from: http://www.med.govt.nz/templates/Multi- assumptions for the scenarios above is provided pageDocumentTOC____39562.aspx; Eng, G. 2006. A Formula for LNG Pricing: A Report in Appendix 7. prepared for the Ministry of Economic Development, May 2006
Opportunity Analysis Page 57 US$/GJ NZ$/GJ Exchange Rate: US$:NZ$ 0.54 Oil Price: US$/bbl $60 LNG Price Formula Guandong Current LNG: CIF LNG: Import Price CIF* 9.10 16.77 plus Re-gasification Cost 2.31 2.31 Cost of imported gas into network 11.41 19.08 LNG: FOB East Asia CIF Price 9.10 16.77 less Freight NZ to East Asia 0.80 1.48 1.48 less Liquefaction Costs 0.80 1.48 1.48 Exports ex hydrate plant 6.13 13.80
Table 5.6: Methane Values Determined from LNG Prices
produced from hydrates. The two pricing and both these variables have been tested in methodologies quoted determine the CIF price the sensitivity analysis. in Japan under differential market conditions. 5.2.5 KEY FINDINGS The ‘Guandong’ price reflects a historical price for LNG at a point in time when surplus supply Costs of Production forced the LNG price down to a level where its The principal costs assessed for the economic links to oil prices were weak. For the purposes analysis were the expenditure on engineering of this analysis, the Guandong price is used development, appraisal of the hydrate to indicate a conservative lower boundary for resource, and all capital and operating costs LNG prices, although the likelihood is that LNG throughout the life of the hydrate plant. The prices will trend higher. On the other hand, data for this study have been derived from the ‘Current’ prices quoted for LNG are more Hancock (2008) and Transfield Worley (2009). reflective of the current and long term view of the supply and demand equation and are thus No assumptions have been included in this more strongly linked to the price of oil. analysis regarding the net cost of any carbon emissions resulting from hydrate use as it The CIF price derived for New Zealand provides has been assumed that the project would an indication of the methane value as an be carbon neutral due to the replacement of alternative to imported fuels while the FOB natural gas and LNG by the methane produced price provides an indication of the export value from hydrates. of methane produced from hydrates. Hancock’s comparison of estimated capital A determination of the CIF and FOB prices is and operating costs for respective hydrates shown in Table 5.6 and these prices have been and natural gas developments at the 195 PJ kept constant throughout the analysis. per annum scale provided an insight into the relativity between hydrates and natural gas Both the current and Guangdong formulae costs of production. These estimates were above have included the cost of re-gasifying complemented by Transfield Worley Services, the LNG in New Zealand, and have the US$/ specifically for the 10 PJ and 150 PJ hydrate NZ$ exchange rate and international oil price as their principal independent variables. These Transfield Worley Services, 2009. Preliminary Development Plan: New Zealand Offshore Gas Hydrates. Unpublished were set at 0.54 and US$60/bbl. respectively, Report prepared by John De Buerger for the NZ Centre for Advanced Engineering.
Page 58 Hydrates Options Analysis ERRATA
Pg 59; Table 5.7: Costs of Exploiting the Hydrate Resource
NZ$ Million Scenario (PJ) 10S 10C 150 300 Hydrate Assessment 22 22 66 168 FEED 14 44 132 420 Capex 370 1300 4043 8391 Opex per annum 17 81 280 332 Abandonment 19 65 202 420
Gas** Assessment 50 50 FEED 107 214 Capex 2142 4284 Opex per annum 102 205 Abandonment 107 214 * Development of hydrate technology and characterization of resource **Table Gas 5 costs.7: Costs based of Exploitingon Hancock Hydrate data Resource (Note: Gas costs based on Hancock 2008 data for conventional well development) scenarios.Pg 168; Due Table to the 5: closeReduction corroboration in Present Cost of Gas Supplyprocessing and compression plant has been between the Hancock & Transfield Worley sized for a much lower output. Services estimates of the 150 PJ scenario, only WhilstGas notSupply included from in 2009the economic to 2075 analysis, one estimate has been used for the costs Scenario Size (PJ) 300 Transfield Worley 150Services also included10C cost 10S of the 150 PJ & 300 PJ scenarios, with due Exports (PJ) 150 estimates for a 9 month0 duration ‘proof-of-0 0 allowances for the differences in project scale. Gas Value LNG concept’ project basedLNG around the developmentDomestic TwoLNG scenarios Price haveFormula been considered forGuandon the 10 Currentand flaring Guandong of gas from Current 2 wells, using a blue- g PJ scale development: water drilling rig and two support vessels. The Hydrate Project Life (years) 25 25 cost of this 25project was estimated 25 at NZD$322m 25 25 • BAUScenario Total 10 PresentPJ/C: A Commercially Cost $M* Driven -29388 -45129and more -30994 information may -50489 be found in -1028 Section -579 Scalable Proving Project 5.1 of this chapter and in Appendix 6. HydrateThis scenario Production is based Start around the staged Reduction in Total Present Cost $M Table 5.7 summarises the cost estimate data Datedevelopment of a 10 PJ pa ‘proving project’ 2040acting as a precursor to, and designed 0to 0 derived for each0 of the four0 scenarios. 0 0 2030be integrated into, a future commercial3263 150 7983 2252 4612 -329 -46 Five consecutive cost categories were included PJ or 300 PJ development. Capital expendi- 2020 8604 21012in the analysis 5931 outlined 12135in Table 5.7: -863 -121 *ture Discount has been rate disproportionately of 5% weighted in at the front-end 10 PJ phase to allow • Assessment: Includes the development of for future capacity expansion. Under this the hydrate extraction technology and the scenario, the cost estimates are based on characterisation of the hydrate resource, the development of a single initial cluster and is assumed to be incurred over a ten of 6 wells at the 10 PJ stage, increasing to year period prior to the commencement of an additional 4 clusters at the 150 PJ stage. engineering design.
• Scenario 10 PJ/S: A Small Scale Stand Alone • FEED: Set at 3% to 5% of capital costs, Project which is typical of large capital projects, and This scenario represents a stand-alone, is assumed to be incurred over a three year small scale project, designed without cog- period for the 150 PJ and 300 PJ scenarios, nisance of integration into future capacity two years for the 10 PJ/C scenario and one expansion. While still based on an initial year for the 10 PJ/S scenario. cluster of 6 wells, the overall capital costs • Capital: Provided by Transfield Worley and are significantly lower than the previ- Hancock. Construction times of four years ous commercially driven scenario as the for the 150 and 300 PJ scenarios, three years
Opportunity Analysis Page 59 for the 10 PJ/C and two years for the 10 PJ/S integrated into the final development so scenarios have been assumed. the total capital cost will be $8,391 million, comprising $1,300 million in the first phase • Operating: Set at 4% to 7%, which is and $7,091 million in the second. consistent with Hancock 2008’s lump sum operating costs over a 25 year operating • The construction time for the 300 PJ plant period, but adjusted for a larger contingency is reduced to three from four years when and higher degree of well maintenance preceded by the 10 PJ/C development compared to conventional gas well because of the high level of integration development. with the initial phase. A four year construction period for the 300 PJ facility is • Abandonment: Set at 5% of capital costs in assumed with the 10 PJ/S initial phase. the year immediately after the last year of operation. • Hydrate production in the 10 PJ/C case will continue throughout the eight year period The unit costs of production for both hydrate- prior to the start-up of the 300 PJ plant derived methane and natural gas under these as the initial phase has been designed assumptions are shown in Figure 5.4, but for subsequent commercial development. only for the 10 PJ/S scenario. The costs for However, hydrate production in the 10PJ/S the alternate 10 PJ/C project were more than “scientific” case is assumed to cease after twice as high as a standalone facility and have two years, although subsequent production not been included in Figure 5.4. As previously from the 300 PJ plant will also commence discussed, the costs determined at a 5% eight years after first production from the discount rate represent the economic costs 10 PJ plant. of production used in this analysis whereas those at 15% are indicative of commercial Competitiveness of Hydrates with price points. Each of the 10PJ/C and 10 PJ/S Alternative Sources of Gas scenarios have been included as the forerunner An economic “internal rate of return” measure to the 300 PJ development in the composite is used to determine the net benefit of scenario. Costs and hydrate production profiles avoiding the cost of natural gas supply by are treated somewhat differently in each case: investment in hydrate technology development and subsequent hydrate plant capital and • As the 10 PJ/S scenario is designed to be operations. This is summarised in Table 5.8 for a “scientific” project, it will not be scaled the 10, 150 and 300 PJ per annum scenarios for integration into the subsequent design and illustrates the sensitivities of the derived of the expanded 300 PJ development. Consequently the total capital cost of the rates of return for the base case assumptions 10 PJ/S composite scenario will be $370 to changes to assumptions in the analysis. million during the first phase plus $8,391 million in the second phase. Conversely, the 10 PJ/C development is designed to be NZ$/GJ
Figure 5.4: The average cost of production at different scales of production and rates of return (Producer price)
Page 60 Hydrates Options Analysis Scenario Size (PJ) 300 150 10 C 10 S Export Component (PJ) 150 0 0 Gas Value Basis LNG LNG Domestic Cost of Production ($/GJ) 3.47 4.09 18.54 4.76 LNG Price Formula Guandong Current Guandong Current Internal Rates of Return (IRR) Base Case Assumptions 17.4% 26.9% 21.5% 30.1% Negative Negative Sensitivities Development Costs + 100% 8.0% 16.5% 10.2% 18.5% Negative Negative Domestic Gas Cost: $5/GJ 17.4% 26.9% 21.5% 30.1% Negative Negative Oil Price: USD$20/bbl 10.0% 12.7% 15.1% 17.3% Negative Negative Exchange Rate US$/NZ$: 11.1% 20.0% 14.0% 22.5% Negative Negative 0.85 Gas Value: Domestic 7.8% 16.3% Negative Negative Negative Negative
Table 5.8: Replacement of Gas by Hydrates - Internal Rates of Return
General conclusions that can be drawn from provides an indication of the risk premium the above include: that may need to be underwritten in the initial stages of the project, whilst full 1. Hydrate production will provide significant development continues. This is more fully net economic benefits relative to imported covered in the analysis of the composite or gas. Hydrate derived natural gas has been staged development scenario later in this valued against LNG in both the 150 and chapter. 300 PJ scenarios, resulting in economic internal rates of return of 30.1% and 3. Table 5.8 also illustrates the sensitivity of 26.9% respectively when using the current the economic rate of return to changes in formula for LNG prices. The driver behind some of the base case assumptions used these high returns is the high value of in the analysis. Even when taking large LNG imports and exports (NZ$19.08/GJ and variations in the principal inputs of project NZ$13.80/GJ respectively) relative to the costs, oil price and exchange rate, the cost of producing methane from hydrate internal rate of return remains above 5% (NZ$4.09/GJ and NZ$3.47/GJ respectively). for the scenarios predicated on LNG prices, indicating that there is significant margin in The economic benefits remain substantial the project to absorb adverse shifts in the even when the LNG is priced according conditions underlying development. to the Guandong formula with IRR’s of 21.5% and 17.4% for the two scenarios, 4. At an oil price of US$ 20 per barrel and indicating hydrate production can withstand correspondingly low LNG prices, the significant downward pressure on regional internal rate of return remains at or in LNG prices under base case assumptions. excess of 10% for both the 150 and 300 PJ scenarios under both LNG pricing formulae. 2. Hydrates are unlikely to be competitive Given recent history, it is improbable that a with domestic natural gas. Both 10 PJ long term oil price below this level would scenarios have negative internal rates of be sustained, suggesting that a hydrate return as the cost of production of hydrate project replacing LNG imports will provide will most probably be significantly more economic benefits under most oil and than that of natural gas. However, an LNG pricing outlooks, provided the base acceptable rate of return might be attained case assumptions for project costs remain if part of the output from an export scale sound. hydrate development was directed to exports to capitalise on the relatively high 5. Similarly, internal rates of return will remain LNG-related prices, as illustrated in the above 10% if the exchange rate were sensitivities section of Table 5.8 where gas to be increased to 0.85, slightly above value is set at domestic levels. the highest rate experienced in the last 20 years, which effectively reduces the More importantly, however, the 10 PJ case benefit obtained from replacing US dollar
Opportunity Analysis Page 61 denominated LNG. A combination of this is discussed in more detail in the next high exchange rate and US$ 20/bbl. oil section. would reduce IRR’s to 6.7% and 10.1% for 7. In the 10 PJ scenarios, the 5% economic the 300 and 150 PJ scenarios respectively, threshold is met only with domestic gas or 4.2% and 7.9% using the Guandong prices at NZ$18.50/GJ and NZ$4.80/GJ for formula. However, this combination is the 10 PJ/C and 10 PJ/S scenarios. These counter-intuitive as a weak US dollar is would have to be nearly doubled to result generally associated with higher prices for in a commercial level IRR of 15%, indicating US dollar denominated commodities such it is highly unlikely that hydrates would as oil. compete with domestic gas resources. Only 6. Doubling the project costs will reduce the 10 PJ/S scenario would be competitive economic IRR’s to 16.5% and 18.5% with imported LNG under the BAU criteria, (8.0% and 10.2% using the Guandong even with doubled project costs, but this formula) for the 300 and 150 PJ scenarios, does not represent a long term commercial indicating the project is robust relative to case. the assumptions on capital and operating costs. However, whilst they are considered Understanding the impact of gas hydrates conservatively high at this time, the hydrate on regional LNG prices costs are based on unproven technology Whilst oil price is the primary energy price and in the absence of any commercial variable used in this analysis, it is the LNG development that would allow better price derived from it that directly influences the calibration of these cost estimates. At hydrate project’s economic performance. doubled project costs, the 5% economic IRR threshold is reached when the oil price The relationship between LNG price and project is reduced to US$22.60/bbl. for the 300 IRR is independent of the two LNG price PJ scenario and US$17.10/bbl. for the 150 formulae discussed in Section 5.3.2 and is PJ scenario (US$39.90/bbl. and US$24.60/ shown in Figure 5.5 for the base case and also bbl. using the Guandong formula), with project costs escalated 100% to reflect the suggesting the hydrate development general uncertainty surrounding project costs. will be economically attractive under most cost and oil price outlooks. It also Even with double the base case costs, the emphasises the importance of accelerating hydrate project will deliver a 5% IRR at an LNG investigations into hydrate technology price of less than NZ$ 8.00/GJ CIF, with the development to reduce uncertainties requisite LNG price ranging from NZ$1.60/GJ for regarding project costs. The impact of the 150 PJ scenario to NZ$7.30/GJ for the 300 oil prices on hydrate project economics LNG Price NZ$/GJ CIF LNG Price
Figure 5.5: The linkage between crude oil prices and hydrate project IRR under the two LNG pricing formulae
Page 62 Hydrates Options Analysis Oil Price US$/barrel Price Oil
Figure 5.6 above illustrates the linkage between oil price and project internal rates of return
PJ scenario with costs escalated 100%. These Benefits of Accelerating Hydrate LNG prices are below those determined by Development both the current and Guandong price formulae This section is intended to evaluate the impact (shown in Table 5.6) at NZ$16.77/GJ and of bringing forward the date of first hydrate NZ$9.10/GJ at the base case oil price of US$ production from 2040 through government 60/bbl., again reinforcing the proposition that assistance, including direct investment hydrates derived natural gas is likely to be the during the exploration and appraisal stages lesser cost option compared to a reliance on of the hydrate resource, assistance towards LNG as a ‘backstop’ fuel for New Zealand. technology assessment, tax incentives and/or other policy and permitting considerations, Figure 5.5 shows the linkage between crude under two cases: oil prices and hydrate project IRR under the two LNG pricing formulae, representing high • By ten years to 2030; and low relativities between LNG and oil • By twenty years to 2020, the latter being prices. General conclusions from this analysis the very earliest hydrate technology could that attest to the economic potential of gas realistically be brought on-stream under hydrates include: ideal circumstances. While assessment costs in this 2020 start up case have 1. When LNG price is the basis for gas hydrate been modelled to be incurred over a value, an economic criterion of 5% IRR five year period to meet the accelerated is met in all base case project scenarios, implementation schedule, this has been including the doubling of project costs, found to have a virtually negligible impact both high and low LNG price relativities on the analysis. with oil and oil prices as low as US$40/ bbl., significantly below the official outlook The output principally affected by the different of US$60/bbl. start up dates will be the project economic 2. A commercial criterion of 15% IRR will be met net present value due to the effect of the time at an oil price of US$60/bbl. in all scenarios value of money. Figures 5.7 and 5.8 illustrate with the exception of a combination of low the relative discounted costs of supplying gas LNG prices relative to oil (when applying the to the New Zealand market over the period Guandong formula) and escalated project 2009 to 2075 for the 300 PJ scenario, allowing costs, providing opportunities for hydrate for the export of 150 PJ and the retention of producers to undercut LNG priced at current the same amount for the domestic market. relativities with crude oil. This becomes more pronounced at oil prices above US$60/bbl. The broken black line in Figures 5.7 and and vice versa. 5.8 is the difference in discounted annual
Opportunity Analysis Page 63 National Gas Supply: Total Discounted Costs 150 PJ Domestic Demand, %5 Discount Rate NZ$ Million
Figure 5.7: Economic impact of accelerating project by 10 years
National Gas Supply: Total Discounted Costs 150 PJ Domestic Demand, %5 Discount Rate NZ$ Million
Figure 5.8: Economic impact of accelerating project by 20 years
cost (negative being more costly) between LNG exports were included in the hydrate the ‘business-as-usual’ and the ‘accelerated development. development’ cases. The sum of these annual 2. This same benefit will, however, not apply costs (or the area under the broken line) is the when displacing low cost indigenous reduction in total present cost of gas supply by natural gas, as illustrated in the two 10 bringing the project forward. The savings have PJ scenarios. As shown previously, the been estimated at NZD$21,012 million for the BAU internal rate of return, and hence net 2020 start up case and NZD$7,983 million for present value, for this scenario is negative 2030 start up over the 67 year period. and consequently, bringing forward the start of hydrate production will increase the General conclusions that be drawn from this net present cost of gas rather than analysis suggest that there is a significant reduce it. potential to reduce the long term cost of the 3. The marginal hydrate exported will be supplying gas to the New Zealand market by similar to those used in the economic accelerating hydrates development: analysis as the methane has been valued against international LNG prices and 1. Under base case assumptions, the net project costs effectively will be the same, present cost of gas supply by hydrate could although not necessarily all born by the be up to about 25% lower over a 65+ year project developer. A pre-tax internal rate period if the start of hydrate production of return of 13% may not be sufficient for was brought forward from 2040 to 2020. developers. This saving could be increased further if
Page 64 Hydrates Options Analysis Staged Hydrate Development Scenario cash flow and methane value profiles for the A composite scenario, based on the staged composite scenario are shown in Figure 5.9. development of a 10 PJ pa ‘proving project’ There are only small differences in the internal acting as a precursor to, and designed to rates of return for the composite scenario with be integrated into a future commercial 150 the 10 PJ/S initial development and the 300 PJ PJ or 300 PJ development 10 years after first scenario. production, has been included to better reflect a The economic benefits of the composite scenario probable development pathway. It is envisaged are dominated by the performance of the that investment in a preceding ‘proof-of-concept’ second phase of the project whose income and project provides scope for the development of expenditure dwarfs those of the 10 PJ proving technology experience and also a mechanism Scale Hydrate End Use Basisdevelopment. for inclusion to more effectively manage the risks associated Disassociation5 with full commercial production. If the investment schedule follows that of the 10 PJ pa 1.5m tonnes Feedstock for 200MW To illustrate the economics of small scale 10 PJ/C scenario, the difference in IRR between Key characteristics of this compositescale scenario thermal development, where it is likely that hydrates generation or willthe be composite competing and against 300 PJindigenous scenarios widens. In include: petrochemicals naturalthis case gas. the capital cost of the proving project • The 10 PJ/S scenario is an alternative Tois provide 15% of the the basis total forand costing the disproportionately the development scenario to illustrate the cash “proving”low income phase during of the this staged initial development. project phase will flow implications of such a development reduce project rates of return. However, they 150 PJ pa 22.5m tonnes Equivalent to the To compare production of hydrates with the pathway; entire New Zealand importationremain above of LNG, the economicthe most likelybenchmark. • Production is expanded to 300gas PJ market eight years (excluding replacement fuel in a longer term supply existing methanol constrainedThe staged domestic development gas market. will reduce technology after first production, providing time for capacity) risk and market risk as output from the 10 technology and market development; PJ proving phase should be relatively easy 300 PJ pa 45m tonnes Will provide 5.4m To illustrate the economics of exporting • Exported methane is valued as in the 300 to balance with market demand. Larger tonnes of methane for methane extracted from hydrates PJ scenario. Methane sold into the domestic domestic use and developments, as illustrated in the 150 PJ market is valued against the exportreplacement as LNG of scenario, may offer greater economic benefits indigenous gas until 2015 and then ramped but face a more challenging and protracted Compositeup to parity with imported LNG10 pricesPJ proving in project To illustrate an economically optimal effort to sell their full capacity on the domestic 2020 and held constant thereafter.expanding to 300 PJ hydrate development pathway production over 10 market. Inclusion of export capacity in the latter A comparison of the costs of productionyears and 300 PJ phase will provide flexibility and anchor derived internal rates of return for each of the demand during the ramp up of the domestic scenarios is provided in Table 5.9 below while market.
Scenario Composite 10 PJ/C Composite 10 PJ/S 300 PJ
Cost of Production $3.67 $3.60 $3.47 NZ$/GJ
Guandong Current Guandong Current Guandong Current LNG CIF (Import) Price in NZ$/GJ $11.41 $19.08 $11.41 $19.08 $11.41 $19.08
Guandong Current Guandong Current Guandong Current LNG FOB (Export) Price in NZ$/GJ $6.13 $13.80 $6.13 $13.80 $6.13 $13.80
IRR under Base 15.4% 23.2% 16.3% 25.0% 17.4% 26.9% Case Assumptions
Table 5.9: Internal Rates of Return for Composite and 300 PJ Scenarios
• All 3 scenarios have an ultimate capacity of 300 PJ: 150 PJ sent into the domestic market (CIF price) and 150 PJ into exports (FOB price)
Opportunity Analysis Page 65 Cost/DCF NZ$ Million
Figure 5.9: Discounted Cashflows for the Composite (staged) Hydrate Development: 10 PJ/C and 300 PJ, 5% discount rate
5.2.3 KEY FINDINGS hydrates present a better alternative to LNG should be latter be a commercially viable Gas hydrates offer a real opportunity to make a backstop for dwindling indigenous natural significant contribution to New Zealand’s longer gas reserves. term energy requirements with large deposits identified close to the North Island coast and 3. Technology for hydrates extraction and within relatively easy access of existing natural processing is in its infancy, with no development having been commercialised gas infrastructure. as yet, placing a high level of uncertainty Based on the best information currently on the cost estimates used in this analysis. available, this analysis indicates that the use Whilst there is a significant margin between of hydrates potentially will bring economic hydrate project economic IRRs and government guidelines based on these benefits to New Zealand and these can be estimates, the hydrates IRRs will diminish increased by policy directed at accelerating should these costs increase, the outlook for their development. oil prices decrease, or LNG prices become 1. Gas hydrates can be produced at depressed through competition with gas significantly lower costs than imported hydrates (should the uptake of hydrate LNG, resulting in economic internal rates of methane become widespread). Increasing return significantly higher than government the research effort to understand and guidelines for hydrate developments prove hydrate technology will reduce this replacing potential LNG imports. This uncertainty, minimise investment risk and provides a significant opportunity for help bring forward commercialisation of hydrates if insufficient reserves of indigenous hydrate resources. natural gas are found to meet market 4. Accelerating the development of hydrates requirements. However, it is improbable that resources as an alternative to imported hydrates would be competitive with natural LNG will significantly reduce the long term gas if sufficient indigenous reserves of gas economic cost of supplying gas to the New were to be discovered because of the greater Zealand market. It is important that policy complexity and cost of hydrate production. settings are put in place to encourage 2. Whilst the use of imported LNG as a shadow early investment in New Zealand’s hydrate economic price might overstate the value resources otherwise international investors in of gas hydrates in the domestic energy this technology will preferentially concentrate market, this analysis demonstrates that gas on other hydrate resources with access to larger and more diverse energy markets.
Section 10.3.3 of New Zealand Energy Strategy to 2050, October 2007 ibid
Page 66 Hydrates Options Analysis 5. Export of hydrate methane as LNG is issues prior to the principal investment in technically feasible and is potentially the project. Whilst the second, larger phase capable of reducing market risk for a will dictate overall project economics and large scale development by diversifying will be attractive if competing against LNG, out of the fragmented New Zealand the proving phase will not (and should gas market, and providing an anchor not be intended to) be commercially self- investment through long term export supporting. Government policies directed contracts. However, the economic and at supporting investment during the financial benefits of exports will be lower proving phase will greatly facilitate the than competing with LNG in the domestic implementation of any subsequent large gas market and will be more sensitive to scale commercial development. project costs and the outlook for oil and LNG prices. 6. A staged hydrate project development with a small proving project preceding the main development appears to be the most optimal gas hydrates development pathway to reduce project risk and help understanding of technical and marketing
Opportunity Analysis Page 67 Page 68 Hydrates Options Analysis 6. AN INFORMATION MANAGEMENT FRAMEWORK FOR GAS HYDRATES 6.1 Introduction • Research information not being available to external parties due to commercial As can be seen from the earlier sections of the sensitivities. report, a strong and growing interest in gas hydrates as a potential unconventional energy More importantly, however, the objectives resource is beginning to draw gas hydrates of scientific and academic research are not research from its highly technical niches and directly commercial, and utilisation of both the literature into mainstream. As a result, high cost data and resulting knowledge arising there is an increasing demand for access to from research by the wider community may be technical and resource appraisal information, impacted due to: as well as more public domain science • The often untimely publication of information, to inform policy makers and other research in highly technical and/or niche interested parties on the issues of developing publications, not well known or accessible gas hydrates as an energy resource. outside narrow fields within the research community; In a conventional resource development pathway, this information is typically available • Relevant information may have historically either through science activity funded by been peripheral to the focus of many of the original publications, and thus, not well government or as part of the work programme known outside specialist fields. requirements associated with prospecting and exploration permits to build the case for Furthermore, the very design of research exploration drilling and eventual development programmes will generally be quite different of discoveries. However, this information and from commercial scientific effort, especially data is generally exclusive to the permit holder when the priorities of New Zealand participants and not usually available until the expiration of have to be integrated with those of overseas the permit. collaborators who are relied on for specialised facilities such as vessels or particular analytical From a research perspective, the key sources capabilities. of New Zealand gas hydrates information are those entities which have been involved in At the current pre-commercial or “pioneering” relevant research in alliance with their overseas stage of evaluation and technology discovery collaborators: Crown Research Institutes (GNS pertaining to marine gas hydrates, no work has Science (geological and geophysical) and NIWA been or is being conducted under exploration (geological, geophysical, biological, chemical or prospecting permits. The only data available and oceanographic)); and to a lesser degree, is either historic petroleum exploration Otago (geological and geophysical) and seismic survey results or geophysical and Canterbury Universities (chemical and process oceanographic data collected under public engineering). sector research programmes. To effectively integrate data and knowledge from these This information is predominantly focused two domains, both the open-file system on geological and geophysical data, with administered by Crown Minerals for the interpretation at a regional or field level. petroleum industry, and the scientific systems However, access to the information held by the within New Zealand and internationally, need research and academic institutions may, unless to be readily accessible. published, be impeded due to: The issue that thus arises is that, too often, • Relevant information being held under public policy development needs to be embargo or access restrictions pending considered in advance of the permit regime publication, due to the collaborative and in the absence of a coherent science research arrangements under which the information was collected; information knowledge base.
An Information Management Framework for Gas Hydrates Page 69 An example of this type of issue is the current relevant research, data and other information permitting moratorium on the hydrates areas of relevant to New Zealand gas hydrate resources. the North Island of New Zealand. However, this However, the results of the investigation is only part of the equation and there needs identified a number of key issues that would also to be a broader more encompassing affect the functionality and content of such a approach to consolidating and centralising the facility. other types of data and relevant information required to support the development of robust Intellectual Property Ownership and effective allocation arrangements to cover Intellectual property ownership was found development efforts for ‘frontier opportunities’ to be a key determinant of content for the such as methane hydrates. repository. For example, when a research paper This chapter explores in more depth some is published, the intellectual property associated of these issues, including the case for with that publication is generally transferred establishing a centralised repository for New from the author(s) to the publisher, unless Zealand gas hydrates information, as well as alternative arrangements are made. This means the wider issue of adapting the New Zealand that in many instances, published papers are permit regime to meet the precommercial unlikely to be deposited in a repository, thus nature of the hydrates resources. defeating its purpose. International collaborations involving New 6.2 New Zealand Gas Zealand researchers also impose their own particular ownership and access arrangements Hydrates Information on publications and data, which may restrict Repository their inclusion in the hydrates repository. To complement MED initiatives to promote Additionally, data acquired by New Zealand New Zealand petroleum and mineral resource research institutes through commercial opportunities (e.g. the Seismic Data Acquisition arrangements may also be subject to access Programme) and potentially, future MED restrictions. The implications for inclusion of gas hydrate initiatives, CAENZ was asked to data gathered and collated through the current investigate the establishment of a New Zealand permit arrangements can be problematic, and gas hydrates information repository. limitations are likely to be imposed. This task encompassed: Internationally, many of the information • A review of international gas hydrates repositories reviewed by the study team repositories; have bypassed the IP ownership issue by tending predominantly to host student • Assessment of repository software theses, publications from their own presses, applications and operating platforms; unpublished papers or pre-publication versions • Consideration of MED’s functional of published papers and conference proceedings requirements, existing information (i.e. the University of British Columbia’s circle management infrastructure and software repository which hosts the Proceedings from the integration requirements; 2008 International Conference on Gas Hydrates). • Assessment of a number of applicable information repository software However, hosting ‘meta-data’ (bibliographical applications; and publication data) and abstracts offers an intermediate method of building content for the • Discussions with GNS Science and NIWA repository. regarding access arrangements to their respective information repositories. Replication Whilst recognising that both GNS Science Despite the silos of information held by the and NIWA maintain individual gas hydrates various research institutions, it is important to databases, it was hoped that this repository ensure that the repository does not replicate could act as a centralised clearing house for these databases.
Page 70 Hydrates Options Analysis It is thus suggested that in order for any Stage 2: future repository to fulfil the objectives of a • Integration with MED Minerals and centralised clearing house, suitable access Petroleum Databases; arrangements be negotiated with the CRI’s. • Links to New Zealand Crown Research Technical Issues Institutes’ information repositories (to be negotiated); A number of technical risk factors were • Links to other relevant information identified in the course of the review that will repositories (to be identified and need to be addressed. These include: negotiated)
• The need (if any) for any selected We anticipate that the project, as above, could repository application to meet New Zealand commence immediately as a pilot programme e-Government web standards and MED/ on the next intermediate stage to finalise Crown Minerals Digital Data Provision access requirements and protocols for access standards; and distribution of information gathered in the • While the Government Shared Workspace course of any ongoing hydrate development may provide a relatively cheap and secure work. Doing so will go a long way to establish platform for deployment of a repository the business case for ongoing investment in application, questions remain regarding such a facility. access by non-government employees and external parties. [We note that as of February 2009, management of the Government Shared Network or GSN has 6.3 Information from the being transferred from the State Services New Zealand Petroleum Commission to Government Technologies and Minerals Permitting Services, as part of a managed exit process of government agencies from this network. Regime Its long term future remains to be seen]; Under the Crown Minerals Act 1991, the • The need for a Concept Plan for a Methane government holds title to undiscovered Hydrates Repository oil and gas, and allocates exploration and development rights to spatially-defined Based on a close analysis of the available permits on an exclusive basis for specified options, an outline concept plan has been terms conditional on agreed investment (work) developed for a function to meet MED’s programmes. objectives for the gas hydrates resource. It is envisaged that this would involve two stages: If New Zealand is to be at the forefront of the gas hydrates industry, then the current Stage 1: permitting regime will need to be adapted to • Full papers and publications will be hosted dovetail with the timetable within which the where MED is either the sponsor or client, main lines of research can be expected to or has secured a release from the owners progress to a fully commercial proposition. of the intellectual property; Under this regime, Crown Minerals issues three • Meta-data (publication and bibliographic types of permits to prospect, explore or mine information and abstract) and links will be provided to all other papers and petroleum resources, as summarised in publications that it has not secured a Table 6.1. release for; In essence, the permitting regime within the http://www.e.govt.nz/standards/web-guidelines/ Crown Minerals Act 1991 establishes a pathway http://www.crownminerals.govt.nz/cms/pdf-library/petro- to gain an exclusive right to exploit a particular leum-legislation-1/petroleum-digital-data-submission-stan- dards.pdf discovery. http://www.e.govt.nz/services/workspace
An Information Management Framework for Gas Hydrates Page 71 Prospecting Permit Exploration Permit Mining permit
Purpose Reconnaissance and Identification of deposits Development, general investigation of an and feasibility studies extraction and area production of discoveries
Activities Acquisition of geological As for prospecting, also Mining, extraction and and geophysical data surveying, exploration production activities and appraisal drilling, testing of discoveries
Allocation Non-competitive Priority in time Subsequent to Competitive – Blocks previous activities, Offer requires acceptance by Crown Minerals of an appropriate work programme for the development and mining of a discovery
Rights Non-exclusive Exclusive, subsequent Exclusive No subsequent rights rights to apply for a mining permit
Duration Up to 1 year Initially for up to 5 years Up to 40 years, related Renewal for 5 years to size of discovery Appraisal extension of up and rate of production to 4 years
4 Table 6.1: Types of Petroleum Permits
As a pre-commercial resource opportunity, As a pre-commercial opportunity, without methane hydrates will require explicit explicit recognition of methane hydrates under separation, perhaps through the mechanism the existing permitting regime, it is likely that of stratified title / strata permits, in order the longer term horizon for commercialisation to prevent the stranding or ‘sterilisation’ of hydrates relative to the shorter term (i.e. of the hydrate resource. Under the current the one or two year time frames for petroleum) permitting regime, it is conceivable that an may create a crossover with potential for exploration permit granted for conventional competing interests over the same acreage. petroleum resources may prevent commercial Appropriate mechanisms will need to be development of a co-associated / co-mingled developed to deal with potentially competing hydrates discovery for up to 14 years. timeframes.
It is also conceivable that without separation We note that NZ has faced a similar situation or exclusion of hydrates from conventional of competing interests in respect of coal petroleum permits under the current regime, bed methane. In this example, the industry that the advent of new hydrates extraction and arrived on the scene before the science had production technologies during the term of actually been completed. A permitting regime the permit may provide the permit holder with was hastily implemented without adequate a windfall opportunity and the New Zealand knowledge of the nature of the resource or the Government with a potential loss of royalty way the resource opportunity needed to be revenue. developed. Recent anecdotal evidence suggests that the current permitting arrangements for 4 http://www.crownminerals.govt.nz/cms/petroleum/permits- coal bed methane remain clumsy and not content/permits-how-do-i-apply-faqs-1/what-are-the- particularly comprehensive. different-types-of-permits
Page 72 Hydrates Options Analysis We suggest that a better, more targeted policy We are fortunate that appropriate technologies and legislative framework that provides for the do exist, and are to be found in the process management with, rather than of, risk needs to industries. But the standard time lines allowed be implemented; rather than simple adoption for under existing petroleum and mineral of policies based on the ‘precautionary regimes are too short for the emergence principal’. Such a regime will also need to be (commercialisation) of pioneer frontier cognisant that it is impossible to foresee all opportunities. Policy direction thus needs to problems or even the development timeline, ensure that the longer timeframes required for at the commencement of a pioneering hydrates exploitation is sufficiently clear, that opportunity. development objectives are well understood and timescales agreed. Moreover, the dimensions of The absence of a sufficiently clear and robust that ambition will also need to be defined at policy and legislative framework for pioneering some early point. resource opportunities like methane hydrates presents a significant risk to the Crown. As Whilst getting the right allocation regime in discussed previously, at the very worse case, place is a crucial part of going forward, without an early decision to allocate acreage within a comprehensive or coherent legal framework the known hydrate theatres may sterilise gas for development there is also likely to be hydrates in the future. considerable additional uncertainties that would impact on virtually every aspect of a commercial- Any permitting regime needs also to take scale project. Experience in the US on carbon into account the reality that it is not always capture and sequestration (CCS) (e.g. Hart possible to adequately forsee future problems 2009) suggests that issues surrounding long- or even development timeframes. This applies term liabilities have created significant barriers in particular to hydrates where the pace of to almost all projects, even where projects are technology development, especially key front acknowledged as posing little or no risk. end geo-technical and engineering issues, may well be ill defined at the commencement of With respect to hydrates development these the exploration phase. An example relevant risks centre on the lack of a clearly delineated to the New Zealand hydrate resource will be Oceans Policy in New Zealand and the lack of the ability of a potential operator to get over certainty around jurisdiction and environmental the pressure/temperature barriers for hydrate effects, including: recovery over such huge dispersed volumes. • Performance requirements under exploration For these reasons, we argue that the permitting regimes, regime and related petroleum exploration • Access, safety, and environmental effects, policies will require a different approach than • Consents for exploration, development, normal policy settings. We suggest that the operation and closure of any hydrate site, way forward should also involve a competition of ideas, not technology or science push; in • Long term monitoring, remediation and other words, simply aiming for a research residual financial responsibility for hydrate corridor as an outcome is not a sufficient sites, reason for permitting decisions. This study • Liabilities for emissions control, flaring, has demonstrated that the commercial commingled resources, and potential development of methane hydrates is a competing use rights serious proposition. Thus, time diverted to • Treatment and accounting for gas hydrates demonstration, scale-up and rollout, unless the under any future carbon mitigation regime, resolution of technical risk factors is shown etc. to dominate, is simply an opportunity cost to The commercial development of frontier the nation. We argue instead that the most opportunities will inevitably challenge optimal development path is to proceed on conventional resource law and governance. the basis that technologies are, or will be, Again US experience suggest that liability issues available during the development timeframe of such as those enumerated above proved difficult the project. to resolve because lead research organisations
An Information Management Framework for Gas Hydrates Page 73 would not ordinarily be expected to manage One way forward is through a procurement- such issues and project proponents lacked the type route as outlined in the following section. necessary experience or financial capacity to A large and robust data base containing appropriately manage the risk. multiple data points and engineering information collected from actual projects In its previous studies on Oceans Policy (CAE worldwide over a broad range of geological 2001, 2003, 2005, 2006), The Centre suggested and other conditions (subsurface geophysics, that in order for oceans policy to be more seismic, wave, climatic, etc) will be necessary supportive of frontier activity there should be a for developing more accurate metrics for a greater tolerance of risk commensurate with the engineering assessment of a New Zealand uncertainty prevalent in activities of this type project. This could provide the first contriution and posed by lack of information. towards proposed Gas Hydrates Information Typically, frontier activities such as hydrate Repository. research, are characterised by insufficient data in the early stages of investigation to 6.4 Providing for support normal business appraisals; and even more critically, a lack of knowledge regarding Commercial Information potential consequences of unanticipated events. Requirements Access to such knowledge will be essential The information requirements for commercial to all stakeholders including those relating to decision taking are broad, multi-faceted and health and safety, environmental management, generally highly interactive. There is also a exploration and finally through to commercial need for flexibility in order to respond to operations. These stakeholders include the changing circumstances, government decisions research community, government, investors, or new commercial imperatives. The legislative lenders, service providers, regulatory agencies and policy frameworks that need to apply to and insurers. pioneering or frontier activity are the extreme Again, what comes clear from this study is example of operating with uncertainty. Rather that the key during this intermediate stage is than a closed science investigative approach, that there are sufficiently robust processes in there needs to be a closer alignment between place to ensure we have more cost-effective science investment and a conventional application of knowledge allowing for proactive engineering stage gate approach for the intervention by government when appropriate. assessment of project risk and evaluation of Our observation in researching the requirements project investment. for a possible gas hydrate information repository Ultimately, the development pathway chosen is that under current science funding regimes, will determine the research requirements. much of the critical data is held under embargo A general framework for decision making whilst providers retain the knowledge to meet needs to be adopted that anticipates the their own commercial imperatives, rather than way new information obtained at each stage providing for knowledge to be shared. of the investigation feeds into the overall We have previously argued for a separate project evaluation, i.e. a stage-gate approach. oceans agency having as one of its functions Explicit treatment of “real options” created the allocation and administration of property and/or destroyed by key decisions along the rights including information management and project path should also be included. Such an brokerage. Whilst this may not be possible in approach requires expert determination and the current environment, it is essential that review of whether the information assembled New Zealand break out of the trap of exclusive is adequate for the stage of the project rights; and instead, overlay an objective, durable and whether all realistic options have been and transparent information management considered. regime that balances the need to incentives Access to such expertise is not likely unless pioneering activity whilst also ensuring sufficient opportunity is taken to either participate competition to maximise the opportunity value in international initiatives (such as the Gulf to New Zealand.
Page 74 Hydrates Options Analysis of Mexico) or alternately is procured via Moving forward requires that we assess all commissioned studies utilising acknowledged opportunities available to us. In evaluating international expertise and know how. So a resource opportunity, there are several doing ensures that the information required to questions that need to be addressed. A stage enable evaluation is available at each given gate process that allows full comparison of the point of time as required. Open access to all different options is recommended. The decision project information, documentation and reports framework through the pioneering stage of gas is particularly vital in the early stages of project hydrate development requires the following definition to ensure that assumptions used are information (not intended as exhaustive) to be reasonable and robust, and that all risks have established: been properly identified and acknowledged. • The extent and characteristics of the Development of a comprehensive hydrates resource; information repository is essential for future • The feasibility and environmental impacts investigation and evaluation of the hydrates of resource recovery; opportunity. It is important for New Zealand • The technical feasibility of production on a to invest in information and knowledge commercial scale; development in this area. Through bringing this investment inside the overall investigative • The commercial feasibility of production framework, the knowledge created can be and utilisation; retained as an exclusive property right by • The social and environmental acceptability government but the right to use can be made of the selected development scenario; contestable as part of any considerations • The availability of the necessary under a future permitting or development infrastructure requirements including a rights allocation. skilled workforce;
In the intermediate pre-competitive • The factors involved in implementation investigative stages, prior to the “doing” of any option and initial strategies for of the project, access to the repository will implementation; facilitate the early resolution of development • Compatibility with national policy hurdles and other impediments. Adopting this objectives. approach will require that work programme be undertaken at arm’s length to existing regulatory agencies or commercial interests.
An Information Management Framework for Gas Hydrates Page 75 Page 76 Hydrates Options Analysis 7. PRELIMINARY RESULTS
7.1 The Way Forward as to ensure that the resource is unlocked and the national benefits are fully realised. Whilst This study indicates that New Zealand can gas hydrate appears to fall within the intended benefit substantially from a proactive strategy scope of the Minerals Programme for Petroleum directed at pioneering large-scale commercial (i.e. gas hydrate is a class of petroleum), a high development of marine gas hydrate resources. level of discretion will be required in relation to methods of permit allocation and administration Development of the hydrate resource, however, to ensure an optimal outcome. Currently, the will not be an easy road. What we have learned main prospective area is closed to petroleum from this study is that the current state of exploration permit applications, maintaining scientific and engineering knowledge is not yet the opportunity for Government to implement a a sufficient basis for the scale of investment proactive, and strategic programme. involved. Major investment to develop a more comprehensive scientific understanding of the In addition to conventional regulatory roles, gas hydrate deposits, as well as considerable Government should evaluate the extent and advancement in engineering geology (marine nature of gaps in the business case for gas geo-technical) and production engineering hydrates development (e.g. insufficient risk- practice will be required. Until the feasibility tolerant capital, and weaknesses in the supply of development has been proven, this R&D chain) and develop strategies to ensure that investment is characterised by a significant level these are effectively bridged. of risk. Technical development will need to embrace It is the view of the study team that the novel and new operating environments. potential benefits of marine gas hydrate Risk components include the likelihood of development in New Zealand at the earliest technological obsolescence during the course practical stage justify a concerted, strategic of the project, interactions between a wide initiative to that end. Deployment of the range of stakeholders, competitive factors, necessary resources for such a track will be and regulatory uncertainty. Vital challenges in expensive and risky. Government needs to establishing a commercial proposition include: consider the capacity of potential sources of • Achieving and maintaining the technical investment capital and technical expertise to capacity to develop the technology and leverage its own interests in the opportunity. support ongoing resource evaluation;
Under current policies, a marine gas hydrate • Adequate financing for multi-stage industry could be expected to arise from investigation and development; a private sector initiative governed by the • Commitment to maintaining long term Crown Minerals Act (analogies include the working relationships between key investigations into seabed massive sulphide stakeholders; and mineral deposits along the Kermadec arc, and • Appropriate incentives to ensure a bankable into coal seam gas in several provinces). We project eventuates. consider it unlikely that, at the present state of knowledge and capital availability, a compelling An important additional consideration will commercial case could be made for development be the capacity to see the development of the resource solely within the private sector process through to commercial completion when the capital and technical requirements and (abandonment would be very expensive and risks are fully taken into account. could well impact adversely on New Zealand’s international reputation as an exploration play) It is thus recommended that Government should and ensuring the institutional capacity to cut look to develop and implement a strategic across competing interests so as to ensure an programme to bring forward the commercial optimal outcome for the country. development of the gas hydrate resource so
Preliminary Results Page 77 Determination of these factors goes beyond coherent and necessarily extensive resource just administration of the Crown Minerals evaluation programme. This entity would regime, and will require a development thus become New Zealand’s counterpart to framework that embraces risk as an foreign government agencies and national oil opportunity and is capable of managing the companies for technology exchange and other trade-offs between public expectations of commercial arrangements, and could form joint certainty and the fiscal and technical realities ventures or other appropriate arrangements of the development pathway. with sources of equity capital at the different development stages. Current institutions in the New Zealand economy fall short of the full set of ingredients A possible model is that of the former Liquid required to unlock the potential of our Fuels Trust Board that was established in the marine energy resource endowment. Besides 1970s to promote and advance activities that its established regulatory roles, government reduced this country’s reliance on imported must address the specific shortcomings. It is fuels. Another model to consider would be a thus the study team’s view that some form of state owned company, which could operate special purpose vehicle may well offer a more in a commercial manner to bring together focused, cost effective means of delivering the the technology, and capital required, directly desired research and opportunity assessments; and through contractual arrangements, joint as well as providing a more equitable ventures etc as appropriate. Countries such as risk sharing arrangement to manage the India, China, and South Korea, through their complexities that will inevitably arise. national oil companies, are applying such mechanisms to the development of their gas Government has numerous options as to how hydrate resource opportunities. the technology, engineering and capital might be brought to bear to deliver the required However, the way forward outlined here research and development effort. It would represents, in the study team’s opinion, a certainly be most desirable to incorporate unique approach to the development of a significant private sector element, to the the New Zealand gas hydrates resource extent that the opportunity is attractive to endowment, that is intended to maximise financially and technically qualified parties. the national benefit while recognising the Clearly, whatever structure is chosen, the goal constraints that such a development would should be to achieve a greater capability and face in New Zealand; including limited research performance than might otherwise be the case funding, indigenous E&P sector size and from a ‘business-as-usual” (reactive) approach. participants, energy end-use factors, etc.
Major factors that need to be taken into We have not, however, discounted the account include separation of regulatory from successes achieved through the RFP process commercial interests, governance and control, of the US DoE model, or the approaches capital and security of any assets, risks and adopted by other national programmes. We liabilities created, ownership and treatment of suggest a more in-depth evaluation of these intellectual property, compliance with statuary different approaches be undertaken to identify and regulatory conditions and ultimately, the applicable opportunities for New Zealand. national interest. The proposed special-purpose vehicle should be deliberately transient in nature: designed to either evolve into a 7.2 Energy and Resources production-oriented business following the and Economic Policy proving of commercial development, or to be Context wound up if this step did not eventuate. If the objective is to unlock New Zealand Such a body can be provided through energy and resource opportunities, it is legislation with the required independence essential that this country have realistic and legal standing to take on those risk scenarios concerning all potential sources of elements that might otherwise deter sufficient petroleum and other thermal fuel supply. private sector participation in a resolute,
Page 78 Hydrates Options Analysis New Zealand is a resource rich country, a It can thus be argued that this country’s (via reality that has often been neglected and Contact and Genesis’ “Gasbridge” initiative) overlooked because planning has been driven present reliance on LNG as the sole backstop by short term horizons and a prevailing view to future natural gas supply presents a that energy supply in this country is there only significant opportunity cost and potential loss to meet domestic demand. The small size of of value to the country. New Zealand’s energy market inevitably leads We should also not lose sight of the value that to intermittent supply constraints, inflexible can be ascribed to an improved and diverse supply arrangements and price volatility; reserves position and the security that derives particularly since the incidence of constraints from being less exposed to international on gas supply from Maui field following the supply and pricing volatilities. Our frontier contract quantity re-determination in 2003. resources should thus be seen as a critical There is a significant body of opinion in New strategic and economic endowment for today’s Zealand that holds a view of an impending and future generations. gas shortfall from the second half of the next Moving forward requires that we assess all decade. LNG is seen as a plausible backstop. opportunities available to us beyond just CNG Gas hydrates represent an alternative to imports. In evaluating a resource opportunities, imported LNG as the backstop, with further there are several questions that need to be scope for export of LNG and/or other value- addressed. A stage gate process that allows added product such as methanol. This study full comparison of the different options shows that, given the information we have is recommended. Such a process requires currently, the economics of hydrates extraction the following information (not meant to be when compared against LNG as a shadow price inclusive) to be established: strongly indicates that gas hydrates may well • The extent and characteristics of the be a lower cost option. resource; Sensitivity analyses in this study, which • The feasibility of resource recovery; doubled capital costs and reduced the LNG • The technical feasibility of production on a shadow price, still support the hydrates case. commercial scale; The economic analysis also demonstrates that bringing gas hydrates development forward • The commercial feasibility of production improves the overall economic case for and utilisation; exploration and development. • The social and environmental acceptability of the selected development scenario; An export orientated hydrates development could also complete the integration of the New • The availability of the necessary Zealand energy market into the global energy infrastructure requirements including a skilled workforce; market, and establish a long-term competitive advantage for the country. • The factors involved in implementation of any option and initial strategies for New Zealand’s understanding of the implementation; prospectivity of its continental shelf regions • Compatibly with national policy objectives. is still relatively immature. There is a range of possible onshore and offshore sources of The collective experience of the study team petroleum supply, including traditional oil/ reinforces the importance of anticipating gas, lignite coals, and coal bed methane as early those issues likely to critically affect well as the hydrates. However none of these any particular development or option. An possibilities can yet be banked, and some awareness of these issues ensures that the may prove of only incremental significance. It analysis net is cast sufficiently widely to is premature to count on any one of these to provide the fullest information on whether to obviate the need to consider any of the others. proceed or terminate investigations.
Preliminary Results Page 79 7.3 Contingencies 7.4 Concluding Remarks Of course, none of the above precludes the Figure 7.1 provides an outline of a proposed possibility that a major natural gas discovery staged development process for a prospective could be made further in the future and thus hydrates oportunity in New Zealand. To the business case for marine gas hydrate progress with the investigative phase, we have development may be delayed. Until that time, to understand the character of the resource however, no one solution can be banked. (Figure 7.1: Stage 1) in more detail and also do Moving down the pathway suggested is not more to catch up with international experience about picking winners but is, instead, intended in the geo-technical setting of marine hydrate to ensure that there is a full field of qualified systems and the geological engineering factors runners; giving recognition to the uncertainties that govern their extraction and methane in the New Zealand energy market and the recovery. Appendix 5 sets out some areas for desirability of having diversity of opportunity. future research to better characterise the New Zealand gas hydrates endowment. Another point raised is at what point does the advancement of one option start to There are a lot of uncertainties that need to exclude others? For example, if a commercial be addressed before a commercial proposition decision is taken in respect of LNG, then does can be established (Figure 7.1: Stage 2). While this forestall investment in other options? much of the technology may be conventional, What this study shows is that hydrates may what this study shows is that beyond the well be a lower cost option to imported LNG scientific knowledge that already exists it and that there may well be a range of other will be essential to any New Zealand effort development options available to a hydrate that we gain access to the industry expertise development, irrespective of any decision operating internationally in this field and that on LNG. we bring together the requisite mix of science and engineering knowledge and expertise to Clearly, if a gas shortfall occurred in the develop our own unique solutions applicable middle of the next decade, i.e. earlier than the to the particular settings that exist within the hydrates option is expected to be practical, prospective gas hydrate provinces identified. LNG imports would go ahead (and thus it is important that LNG investigations continue); We acknowledge that there is not a perfect but in parallel, it is vital that we continue to universal model for this type of development. advance work on hydrates so that a more Our review of the international hydrates informed decision can be made. development activities suggests, however, there is room for improvement and efficiency A core question not answered by this in expediting the handover from research preliminary work is what the optimal to commercially disciplined stages of development technology option might be? This investigation. question goes beyond the current scope but, irrespective, we comment that such questions For New Zealand, therefore, to get ahead of the are essentially commercial decisions best game we need to think in terms of a targeted undertaken by those who ultimately have the programme directly applicable to our resources, responsibility for the “doing” of the project. energy market situation and the overall structure of our economy. As this study shows, The most appropriate approach at this stage there are many benefits for New Zealand from is to ensure that the commercial environment the early implementation of an engineered exists in which the incentives facing the and optimised solution. Ultimately, it is about private sector participants lead to investment completion - reliance on science effort alone decisions on their part that correspond to, and will not provide the right mix of ingredients to are aligned with, the national interest. effectively complete the required appraisals for commercialisation of the hydrates.
Currently, where New Zealand sits is that we do not have the critical mass to engage
Page 80 Hydrates Options Analysis STAGE 1
Resource Definition: STAGE 2 - Physical Properties
Resource Allocation: - Legal Framework Economic - Royalty Regime Opportunities: - Research Economic Scope: - Engineering STAGE 3 - Size of opportunity - Options: domestic vs Production: export * conventional STAGE 4 How: Government vs production Collaboration * unconventional product Commercial Validation: * transportation Frameworks - Industry engagement * utilisation - International Development Collaboration Infrastructure
Site Survey & Appraisal & Testing Development & Production Proving Project
Government Engagement Government Interventions Industry Engagement Figure 7.1: Staged Development Outline
properly and fully in international efforts this country, advancement of the commercial except (barely) at the scientific forum level. opportunity requires that New Zealand brings We need to look also towards the service together a critical mass of key players capable industries to develop relevant expertise, and to of interacting and networking right across the design and implement programmes which will supply chain. encourage the early involvement of commercial We suggest any future New Zealand initiative interests in the engineering investigations and should be designed around how best to stage the development of engineered solutions to any development pathway. This is a judgment establish the viability of hydrates development. to be made by others and will be largely This will require that a general framework of determined by the market as it opens, and investigations be established, with designated the risk perceptions at the time. We note that review points, in order that the areas of primary the Korean government has earmarked over importance are properly assessed and that US$250 million to form a national development information enabling evaluation is available at team within the state owned Korea National each of the review points as required. This in Oil Company. The required investment to bring its own right will be a significant body of work any future proposal forward thus will be undertaken over several years. It does not seem significant. essential to us that future science effort be Table 7.1 on the following page provides a targeted to the conduct of a pilot production suggested notional development pathway for project. There are other options available to us. a prospective future New Zealand gas hydrates The following diagram illustrates how a staged initiative. It outlines the types of activities and development might look. time frames that might apply. Further work is The way forward requires a procurement required to fully assess the particular resource path that gives confidence and provides opportunity and the development programme options. Whilst we can continue to count on that might ensue. conventional models for international science collaboration to provide the necessary leverage and traction to scientific research underway in
Preliminary Results Page 81 Table 7.2: Notional New Zealand Gas Hydrates Development Pathway
Intended Outcomes 2008-2010 1. Commencement of a programme of resource characterisation and seismic data acquisition; 2. Development of the business and science case for a New Zealand gas hydrates initiative; 3. Development of the business case for NZ participation in selected international programmes, e.g. the Gulf of Mexico Joint Industry Programme, the Korean Gas Hydrates programme etc 4. Increased attraction of international collaborations to New Zealand (e.g. IFM- GEOMAR cruise in 2010); 5. Development of an allocation regime for New Zealand hydrates; 6. Ongoing project assessment and conceptual studies, including preliminary geological and technology assessments, engineers appraisal opportunity definition/investment boundaries;
2010-2012 7. New Zealand participation in selected international programmes; 8. Designation of a site for a New Zealand based hydrates initiative; 9. Preliminary feasibility and engineering studies, including: • Industry Engagement; • Investment Decision-Making Framework; • Environmental Impact Assessment; • Legal and regulatory reviews; • Technology Assessments/Infrastructure Options; • Economic Projections.
2012-2014 10. Detailed Feasibility & Financial Assessments; 11. Commencement of a drilling and production testing programme; 12. Identification of production site; 13. FEED and associated infrastructure planning; 14. Finalisation of construction contracts and due diligence processes; 15. Finalisation of commercial and market arrangements; 16. Development structure and venture arrangements finalised;
2014-2022 17. Construction and commissioning of facilities commences;
2022-onwards Ongoing operations.
Table 7.1: Notional New Zealand Gas Hydrates Development Pathway
Page 82 Hydrates Options Analysis 8. CONCLUSIONS
The successful development of the marine gas are of the order of 813 Tcf over an area of hydrates resources of New Zealand will require approximately 50,000 km.2 extensive ongoing research and in-depth In addition to the relatively high distribution investigation over many years. What this study of indicated “sweet” spots available for has shown is that gas hydrates offer a real exploration, the accessibility and proximity opportunity to make a significant contribution of the Hikurangi Margin to major population to New Zealand’s longer-term energy require- centres and existing natural gas distribution ments and, based on the information currently infrastructure offers special advantage. available, accelerating their development offers the potential for significant increased economic At approximately 20 km off shore and around benefit to New Zealand. This resource class is 1200-1800m depth, these offshore reserves of such a scale that, contingent on the suc- also have significant spatial and physical cessful development of commercial production advantage over most of the other key gas technology, marine gas hydrate could underpin hydrate research sites globally. Again this has New Zealand’s future energy supply system and to be further evaluated. also form the basis for new export industries. In this study we have drawn on current New Zealand has access to enormous coastal research knowledge of these Hikurangi margin marine methane gas hydrate deposits. Whilst deposits and from information devices from a means for commercial recovery of this international research programmes directed at resource has yet to be proven initial surveys gas hydrate development, develop a possible and the research undertaken to date suggests road map for the commercial production in that the Hikurangi margin, off the East Coast New Zealand of natural gas from methane of the lower North Island contains potentially hydrate. This road map anticipates continuing recoverable natural gas reserves many-fold that rapid progress in the engineering geology, represented by the known conventional natural geological characterisation and production gas reserves (including that already produced) technologies required for hydrates extraction, available from the Taranaki Basin. and its commercial exploitation.
How much of the New Zealand hydrate’s To this end this study has looked at a notional resource might be economically recoverable staged gas hydrate development plan, and at what production cost is yet unknown; commencing with construction of a 10 PJ/y but even at the most conservative level, proving facility and expanded into a 150 PJ/y estimates suggest that the potential or 300 PJ/y commercial facility over a ten-year volumes of natural gas available offers a period. The economics of such a facility are transformational opportunity available to New as set out below. More information on the Zealand that can not be ignored. underlying rationale for the figures in Table 8.1 is described in Estimates of the volume of recoverable gas Chapter 5 and Appendix 7.
Scenario 300 PJ 300 PJ 300 PJ Composite/10C Composite/10S Capital Cost NZ$ million 1,300 +7,091 370+8,391 8,391 Cost of Production NZ$/GJ 3.67 3.60 3.47 Guandong LNG price 15.4% 16.3% 17.4% IRR* Current LNG price 23.2% 25.0% 26.9%
Table 8.1: Internal Rates of Return under different scenarios
Conclusions Page 83 The information in Table 8.1 is based on the has literally leap-frogged scientific endeavour, following assumptions: is a useful lesson. Nowadays, this resource is providing substantial supplemental supply • The use of LNG as the shadow price for of natural gas into a number of international hydrate derived methane; markets, for example in North America where • A domestic gas price of NZ$5/GJ; conventional gas production capacity is in • An oil price of US$60/bbl; decline and offers considerable diversity in the markets. • A US:NZ exchange rate of 0.54;
• 300 PJ production is divided equally Countries which are investing in research into between domestic and export markets. the commercial development of hydrates are particularly the energy-deficient industrial On the basis of this analysis, hydrates economies of South Korea, Japan and India; production would provide a significant net as well as the United States and some of the economic benefit relative to imported LNG. European nations. For New Zealand to attract However, hydrates are unlikely to be competitive the levels of investment in research and with most domestic conventional natural gas. technological expertise that characterises these Sensitivity analysis emphasised the importance programmes we will need to develop a paradigm of accelerating investigation into hydrates that is quite different from the current resource technology development and its customisation development pathway that would typically be for New Zealand so as to reduce uncertainties followed for a conventional petroleum resource regarding project costs. discovery. Under the base case assumptions used in In this study, we explored some of the key this study, it can be concluded that hydrates issues that might influence these directions, development provides a significant potential and the requirements for New Zealand to be economic opportunity for New Zealand. at the forefront of an emergent international Continued evaluation of the reserve opportunity gas hydrate industry. Key conclusions and is thus important in the event that continued observations include: limited indigenous reserves of natural gas prove insufficient to sustain current demand. • The level of investment required for a gas Accelerating the development of the hydrates hydrate development will be considerable. resources as an alternative to importation of New Zealand has a significant opportunity LNG could significantly reduce the long-term to take a leadership position in international efforts to bring this technology to commer- economic cost of supplying gas to the New cialisation. It would not be the first historic Zealand market. example of technological pioneering by a In this respect, it is important that policy setting small country; arrangements are put in place to encourage • To act as a pioneering nation will require early investment in New Zealand’s hydrates considerable government leadership and resources; otherwise, international efforts and intervention because unlike other economies investment will preferentially concentrate on currently active in researching hydrates other hydrates resource oportunities with better development, New Zealand lacks either proximity to larger and more diverse energy a national oil company or the financial and technological capacity to fund a markets. New Zealand could expect to be a development on its own; technology-taking follower several years after the establishment of viable and value-generating • Such an effective initiative, however, will not marine hydrate industry elsewhere. be driven by science effort and institutional arrangements alone. Whilst the critical role There is a strong and growing interest in of science and research is acknowledged, gas hydrates internationally as a potential further advancement of the New Zealand non-conventional energy resource to meet hydrates opportunity will necessarily be an impending shortage of natural gas in the technology-driven and engineering led. This developed economies. The analogue of coal will need to be supported by a regulatory and resource governance regime that is bed methane, where commercial exploitation
Page 84 Hydrates Options Analysis conducive to attracting the international We argue in this report that New Zealand interests capable of providing the necessary should thus adopt a development pathway technological know-how and risk capital that seeks to arrive at a solution that properly to bring a commercial proposition to reflects the New Zealand circumstance. It is completion. The attraction of private and recognised that such an approach engages international capital will require well- Government in upstream activity much conceived property rights in respect of earlier than has been the recent practise but hydrate development; significant advantage will come from New • An important contribution to this will Zealand ensuring that it has the earliest be early support for establishment of a possible opportunity to develop its hydrate New Zealand gas hydrates information resources. repository to complement existing and future MED initiatives to promote New A more detailed analysis of the best pathway Zealand petroleum and mineral resource for government to establish such a framework opportunities. A concept plan for such is currently under consideration as the next a repository has been developed that stage of our work. integrates with MED data bases and links to New Zealand CRI information repositions Ultimately, the development pathway chosen holdings. will determine research requirements. In this Whilst there are important lessons to be study we conclude that the preferred approach derived from the Mallik (Arctic sub-permafrost is a conventional framework that anticipates hydrate field), Gulf of Mexico, Indian and other the way new information obtained at each international programmes, any New Zealand stage of the investigation feeds into the initiative will need to be more closely aligned overall project evaluation and gives explicit with our own national energy and resources treatment to “real” options at each stage of policies, which emphasises unlocking of such the decision pathway. Research and technology resources, and be more strongly development- development will best be integrated with focussed if such a programme is to be realised. capital allocation processes within explicit permit areas issued under the Crown Minerals Collaboration will be critical but participants will Act. need to be cognisant of commercial interests, and objectives must be aligned with New Moving forward requires that New Zealand Zealand’s national interests, rather than focussed fully assesses its hydrates option against all on purely research and science outcomes that options available for meeting our future energy dominate the objectives of international research needs. To this end, a “procurement pathway” efforts. is recommended that would give confidence that the investigations and assessments As a pre-commercial resource opportunity, undertaken are robust and reflect industry methane hydrates will require explicit treatment norms as well as ensuring that all options within the Crown Minerals regime to provide are fully canvassed. It is recommended that preferential considerations to support future consideration be given to the creation of exploitation and production. Any permitting a specialist corporate entity tasked and regime will need also to take into account resourced to procure and carry out these the reality that it is not always possible activities in a non-partisan way, and which to adequately foresee future problems or separates regulatory and commercial interests. even development time frames. Policy and Such an entity could would become New procurement frameworks must recognise the Zealand’s counterpart to foreign government high costs and risks associated with frontier agencies and national oil companies for activities of this type and thus allow for technical and scientific exchange, and other uncertainty and technological risk that might commercial arrangements. otherwise be unaccepted under normal policy settings. Finally, we reiterate that the objective of this study was to examine the case for hydrates development in this country and the options available to New Zealand to
Conclusions Page 85 unlock the potential of this endowment. We therefore recommend that Government This study has confirmed the economic develop and implement a strategic programme potential of the resource and its importance to bring forward the assessment of the gas as a transformational energy opportunity hydrates resource and ongoing evaluation for this country. Technical development of the business case for gas hydrates will need to embrace novel and new development. This should be undertaken within operating environments. Competitive factors the wider context of New Zealand’s overall and regulatory uncertainty will challenge energy policy and the strategic imperative of conventional resource regimes, and the securing for this country an improved and more uncertainties that characterise frontier diverse energy reserves position. opportunities may well trigger public concern and opposition unless the nature of the opportunity is communicated fully and effectively.
This study also suggests that significant national benefit could accrue from early commercialisation of this opportunity.
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Toulmin, S.J., Pecher, I.A., Schwalenberg, K., Winters, W.J., Waite, W.F., Mason, D.H., Gilbert, Henrys, S.A., 2008. Gas hydrate distribution L.Y., Pecher, I.A. 2007. Methane gas hydrate from seismic and controlled source effect on sediment acoustic and strength electromagnetic data at Porangahau Ridge, properties. Journal of Petroleum Science and southern Hikurangi subduction margin. Suppl. Engineering 56: 127-135. to Eos, AGU Fall Meeting. Wright, J.F., Dallimore, S.R., Nixon, F.M. 1999. Townend, J., 1997. Estimates of conductive heat Influence of grain size and salinity on flow through bottom-simulating reflectors pressure-temperature thresholds for methane on the Hikurangi margin and southwest hydrate stability in JAPEX/JNOC/GSC Mallik Fiordland, New Zealand. Marine Geology 141: 2L-38 gas hydrate research-well sediments. 209-220. Bulletin-Geological Survey of Canada 1999: 229-240. United States Geological Survey (USGS). 2009. Results of the Indian National Gas Hydrate Xu, W., & Ruppel, C.D. 1999. Predicting the Program (NGHP) Expedition 01. Retrieved occurrence, distribution, and evolution of from: http://energy.usgs.gov/other/gashydrates/ methane gas hydrate in porous marine india.html. Accessed 17 January 2009. sediments. Journal of Geophysical Research. 104: 5081-5095. US Department Of Energy (DOE). 2008. Gulf of Mexico Gas Hydrates Joint Industry Project Yamamoto, K., & Dallimore, S., 2008. Aurora- (JIP) Characterizing Natural Gas Hydrates in JOGMEC-NRCanMallik 2006-2008 Gas Hydrate the Deep Water Gulf of Mexico, Retrieved Research Project Progress. Fire in the Ice: from: http://www.netl.doe.gov/technologies/ Methane Hydrate Newsletter Summer Edition. oil-gas/FutureSupply/MethaneHydrates/ Zhang, H., Yang, S., Wu, N., Su, X., Holland, M.,
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Page 94 Hydrates Options Analysis APPENDICES
APPENDIX 1: Project Team Profiles
Project Team undertaken by the Ministry for the Environment Dr R J (George) Hooper, CAENZ during 2003 and 2004, and to work by CAENZ Currently Executive Director of the New for MfE and Crown Minerals since 2005. His Zealand Centre for Advanced Engineering, company, GeoSphere, has also completed George has contributed project direction numerous contracts for Crown Minerals, and technical input to this project. George principally since 2004, assisting with provision is a professional engineer with an extensive of value-added technical information in support background encompassing both the technical of Blocks Offers. and the commercial fascets of the energy and Mr John Duncan natural resource sectors. Relevant previous John Duncan is an Energy Analyst and roles include appointments as NZ executive specialist in energy markets and economics. committee member for the IEA bioenergy His extensive 20+ year background with implementing arrangement and Chair of the oil, LPG, petrochemical and coal companies New & Emerging Energy Technologies Reference has provided him with a firm background Group for FoRST. George is also a fellow of knowledge of the technologies and economics the Institution of Professional Engineers New of industrial and transportation fuels and their Zealand. supply, distribution and marketing. This has Mr Kevin Chong, CAENZ been complemented by 15 years spent with Kevin Chong manages CAENZ’s Frontier energy companies, government departments Resources, Patronage and Distingushed Fellows and agencies, and international organisations programmes. He also acts as a project manager such as the World Bank involved in the for CAENZ projects in the energy, resources development of energy resources and markets and telecommunications fields, and brings and in energy policy and planning. extensive New Zealand and international Mr John de Buerger, Transfield Worley experience in technology commercialisation, John de Buerger contributed expert input and international marketing and business strategy capital costs estimates for the scenarios used to this project. in the analysis, drawn from Transfield Worley’s Dr J M (Mac) Beggs, GeoSphere cost database for New Zealand offshore and Mac Beggs is a petroleum geologist with a onshore oil and gas developments; in addition PhD in Geological Sciences from the University to evaluations of world wide progression of of California, with diverse work experience capabilities for drilling and production, and in NZ and North America. He has worked cycle time analysis of different development as exploration geologist for BP America in scenarios. Houston and Dallas identifying new oil and Mr Hamish McKinnon, University of Canterbury gas prospects off the Gulf of Mexico and Hamish McKinnon is a Masters of Engineering monitoring exploration and planning, as well candidate at the Department of Chemical and as being part of exploration, appraisal and Process Engineering, University of Canterbury. development teams in Alaska and other North Hamish has worked as a Regulatory/Production American basins. Engineer prior to commencing postgraduate Dr Beggs has also been closely involved with study. His current studies at the university public policy in relation to ocean resources, are focused on biomass gasification for the including serving as a member of the production of hydrogen, utilising various bed Ministerial Advisory Committee on Oceans materials to enhance the hydrogen-producing Policy in 2001, and contributing to work reactions.
Appendicies Page 95 Research Contributors Dr Philip Barnes Philip Barnes is a marine geologist with 22 Institute of Geological and Nuclear years experience the field of active continental Sciences (GNS Science) margins. He has led numerous marine surveys Dr Stuart Henrys and scientific projects and is a NIWA Principal Dr Stuart Henrys is a Senior Scientist at GNS Scientist. He uses geophysical, geological, Science in Lower Hutt who uses a range of bathymetric and sample data, and has pub- geophysical observations to characterise lished on active tectonic faulting and structure, gas hydrates in marine sediments. He has submarine earthquake potential, sedimentation participated in more than 15 marine seismic and stratigraphy, submarine landslides, canyon surveys (seven as Chief or Co-Chief Scientist) development, and the geological framework and published ten peer reviewed papers of fluid seep sites and gas hydrates. He has related to gas hydrates and East Coast worked on a variety of consultancy projects, tectonics in the past five years. He is a member including marine engineering investigations for of the IODP Site Survey Panel, Australian-New the installation of submarine pipelines, power Zealand IODP Science Committee, chairs the and telecommunication cables, exploration New Zealand ANDRILL Steering Committee, drilling platforms, port developments, earth- and is the New Zealand representative on quake potential for seismic hazard assess- InteMmargins. Stuart co-supervises an MSc ments. He has been a technical expert and student studying the crustal structure of New Zealand delegate on the definition of New the Raukumara Basin and a PhD student Zealand’s Legal Continental Shelf project. investigating gas hydrate resources off eastern Dr Geoffroy Lamarche New Zealand. Dr Geoffroy Lamarche is a Principal Scientist Dr Ingo Pecher at NIWA in Wellington who has explored As a marine geophysicist, Dr Ingo Pecher uses extensively beneath the oceans around New geophysical techniques to study marine gas Zealand. He has specialized in using high hydrates. Since 1991, his research has focused resolution reflection seismic and multibeam on gas hydrate deposits offshore of the US, swath data for characterisation of seafloor Costa Rica, Peru, and New Zealand. He has substrate and habitat. He is the lead scientists participated in 13 marine surveys, including on a number of international science projects three as Chief or Co-chief scientist. He was also on the East Coast of the North Island including involved in laboratory studies on gas hydrates. studies of seafloor stability. He is the NIWA He has published 14 peer reviewed papers in representative on the New Zealand Ocean the past five years, mostly on gas hydrates, Drilling Programme (NZODP) and served on with five additional papers currently in review. the both Technical Experts Working Group and Submission Group for the NZ Extended Presently, Dr Pecher is advising one and co- Continental Shelf Programme (UNCLOS). advising two PhD students. Dr Vaughan Stagpoole Other Contributors Dr Vaughan Stagpoole is the Oceans Explora- Dr Bruce Riddolls tion Section manager and Physical Resources Bruce Riddolls is a senior engineering geologist of the Oceans programme leader at GNS with special expertise in resource assessment Science in Lower Hutt. He is a geophysicist and development. Bruce is a longstanding specialling in research on the formation and associate of CAENZ and has contributed to a development of sedimentary basins and on wide range of resource studies for the Centre, basin modelling. Recently he has been involved including the South Island Lignite Assessment in the assessment of the prospectivity of New studies and the recent hydrates analysis. Bruce Zealand’s frontier sedimentary basins and the has contributed technical writing & internal New Zealand Law of the Sea project. Vaughan review of this report. has a PhD degree from Victoria University of Wellington.To be completed Mr Gary Eng, Energy Markets Analyst Gary Eng is an international specialist in energy
Page 96 Hydrates Options Analysis markets and energy economics, in particular New Zealand gas market forecasting and Asian LNG trade. He has provided expert input into the modeling and analysis.
Mr Matthew Stevens, GeoSphere
Ms Yvette Hobbs, University of Canterbury A Master’s student in the Department of Engineering Geology at the University of Canterbury
Appendicies Page 97 Page 98 Hydrates Options Analysis APPENDIX 2: Selected New Zealand Gas Hydrates Bibliography
Baco-Taylor, A., Rowden, A.A., Levin, L., Smith, New Zealand. EOS Transactions 76(1): 1-5. C., Bowden, D.A. 2009. Initial characterisa- Collot, J.-Y., Delteil, J., Lewis, K.B., Lamarche, tion of cold seep faunal communities on G., Audru, J-C., Barnes, P.M., Chanier, F., the New Zealand Margin. Marine Geology Chaumillon, E., Lallemand, S., Mercier de (submitted). Lepinay, B., Orpin, A.R., Pelletier, B., Sos- Barnes, P.M., Lamarche, G., Bialas, J., Henrys, son, M., Toussaint, B., Uruski, C. 1996. From S.A., Pecher, I.A., Netzeband, G.L., Greinert, oblique subduction to intra-continental J., Mountjoy, J.J., Pedley, K., Crutchley, G. transpression: structures of the southern 2009. Tectonic and geological framework Kermadec-Hikurangi margin from multibeam for gas hydrates and cold seeps on the bathymetry, side scan sonar and seismic Hikurangi subduction margin, New Zealand. reflection. Marine Geophysical Researches Marine Geology (submitted). 18: 357-381. Beggs, J.M., Lamarche, G., Neil, H.L., Wright, Collot, J.-Y., Lamarche, G., Wood, R.A., Del- I.C. 2006. Analogues for North Taranaki tiel, J., Sosson, M., Lebrun, J-F., & Coffin, Mio-Pliocene depositional systems. Devel- M. 1995. Morphostructure of an incipient opment, M.o.E. (Eds). 2006 NZ Petroleum subduction zone along a transform plate Conference, Auckland, New Zealand, 5th-8th boundary: Puysegur Ridge and Trench. March 2006. Geology 23(6): 519-522. Bull, J.M., Barnes, P.M., Lamarche, G., et al. Collot, J.-Y., Lewis, K.B., Lamarche, G. & Lal- 2006. High-Resolution Record of Displace- lemand, S. 2001. The giant Ruatoria debris ment Accumulation on an Active Normal avalanche on the Northern Hikurangi fault: Implications for Models of Slip Ac- Margin, New-Zealand: Result of oblique cumulation during Repeated Earthquakes. seamount subduction. Journal of Geophysi- Journal of Structural Geology 28: 1146–1166. cal Research 106(B9): 19271-19297. CAE (Centre for Advanced Engineering), 2001. Delteil, J., Collot, J-Y., Wood, R.A., Herzer, R., Our Oceans: A Journey of Understanding. Calmant, S, Christoffel, D., Coffin, M., Fer- CAE Comments Vol 1. riere, J., Lamarche, G., Lebrun, J-F., Mauffret, A., Pontoise, B., Popoff, M., Ruellan, E., CAE (Centre for Advanced Engineering), 2003. Sosson, M. & Sutherland, R. 1995. De la Economic Opportunities in New Zealand’s Faille Alpine de Nouvelle Zélande à la fosse Oceans: Informing The Development of de Puysegur: Résultats de la campagne de Oceans Policy. Prepared for the Oceans cartographie multifaisceaux GEODYNZ-SUD Policy Secretariat, Ministry for the Environ- leg 2. Comptes Rendus de l’Académie des ment, June 2003. Sciences, Paris 320(série IIa): 303-309. CAE (Centre for Advanced Engineering), 2005. Delteil, J., Collot, J-Y., Wood, R.A., Herzer, R., Energy Supply In The Post Maui Era: An Calmant, S, Christoffel, D., Coffin, M., Fer- Investigation Into Thermal Fuel Options and riere, J., Lamarche, G., Lebrun, J-F., Mauffret, Their Contribution To Energy Security. CAE A., Pontoise, B., Popoff, M., Ruellan, E., Comments Vol 4. Sosson, M. & Sutherland, R. 1996. From CAE (Centre for Advanced Engineering), 2006. strike-slip faulting to oblique subduction: A A Report on Possible Government Interven- survey of the Alpine Fault-Puysegur Trench tions to Promote the Sustainable Develop- transition, New Zealand, results of cruise ment of New Zealand’s Oceans Resources. Geodynz-sud leg 2. Marine Geophysical Prepared for the Oceans Policy Secretariat, Researches 18: 383-399. Ministry for the Environment, May 2006. Ellwood, M.J., Kelly, M., Neil, H., Nodder, S.D., Collot, J.Y., Delteil, J., Herzer, R.H., Wood, R., 2005: Reconstruction of paleo-POC fluxes Lewis, K.B., Audru, Jean C., Mercier de lepi- for the Campbell Plateau region of south- nay, B., Popoff, M., Sosson, M., Barnes, P., ern New Zealand using the zinc content Lamarche, G. 1995. Sonic imaging reveals of sponge spicules. Paleoceanography 20: new plate boundary structures offshore PA3010, doi:10.1029/2004PA001095.
Appendicies Page 99 Jones, A.T., Greinert, J., Bowden, D.A., Klaucke, Instability Complex. Geochemistry, Geo- I., Petersen, J., Netzeband, G., Weinrebe, W. physics, Geosystems 9(4): Q04001. doi 2009. Acoustic and visual characterization 10.1029/2007GC001843. of methane-rich seabed seeps at Omakere Lamarche, G., Beanland, S. & Ravens, J. 1995. Ridge on the Hikurangi Margin, New Zea- Deformation style and history in the land. Marine Geology (submitted). Eketahuna region, Hikurangi forearc, New Klaucke, I., Weinrebe, W., Petersen, C.J., Zealand, from seismic reflection data. New Bowden, D.A. 2009. Temporal variability of Zealand Journal of Geology and Geophysics gas seeps offshore New Zealand: Multi-fre- 38(1): 105-115. quency geoacoustic imaging of the Wairara- Lewis, K.B. & Marshall, B.A., 1996. Seep faunas pa area, Hikurangi margin. Marine Geology and other indicators of methane-rich dewa- (submitted). tering on New Zealand convergent margins. Law, C.S., Nodder, S.D., Marriner, A., Mountjoy, New Zealand Journal of Geology and Geo- J., Barnes, P.M. 2006. Preliminary investiga- physics 39: 181 - 200. tion of cold seeps as methane sources off Lewis, K.B., Nodder, S.D., Carter, L. 2006. Sedi- southeastern North Island. New Zealand ments on the sea floor. Te Ara: the Online Geosciences 2006 Conference Proceedings. Encyclopedia of New Zealand. Retrieved Law, C.S. & Marriner, A.. Methane emission, from: http://www.teara.govt.nz/EarthSeaAnd- distribution and prediction in the New Zea- Sky/OceanStudyAndConservation/SeaFloor- land Economic Exclusion Zone. Deep-Sea Geology/7/en Research I (in prep). Le Gonidec, Y., Lamarche, G., Wright, I.C. 2003. Law, C.S., Nodder, S.D., Maas, E., Mountjoy, J., Inhomogeneous Substrate Analysis Using Marriner, A., Orpin A., & Barnes, P.M. 2008, EM300 Backscatter Imagery. Marine Geo- Cold seeps as methane sources in Cook physical Researches 24: 311-327. Strait, New Zealand: effects of lateral and Livingston, M., Nodder, S., Holmes, S. 2007. vertical processes on regional methane Mysteries of the deep: Preliminary results budgets. European Geosciences Union Gen- from the Ocean Survey 20/20 Chatham- eral Assembly, Vienna (Also presented at Challenger Project. 2007 NZ Marine Scienc- 2008 New Zealand Marine Sciences Society es Society Annual Conference Proceedings. annual conference.) Livingston, M., Mackay, K., Mitchell, J., Goh, A., Lamarche, G., Nodder, S.D., Le Gonidec, Y., Nodder, S., 2006. Oceans 20/20: Mapping Dunkin, M. & Wright, I. 2004: Characteri- Biodiversity and Sea-bed Habitats in New sation of seafloor substrates around the Zealand 2006-07 - The Chatham Rise and New Zealand continental shelf and deep Challenger Plateau. 2006 NZ Marine Sci- ocean using EM300 and EM3000 multibeam ences Society Annual Conference Proceed- bathymetry and seafloor reflectivity. In: Pro- ings. ceedings of SeaTechWeek 2004 Conference: “In-situ Seabed Characterisation”, Brest, Neil, H.L. & Nodder, S.D. 2006. The Ocean’s France, 18-22 October 2004. Bounty. In: A Continent on the Move: NZ geosciences in the 21st century (chief edi- Lamarche, G., Proust, J.-N. & Nodder S.D. 2005. tor, I. J. Graham). Geological Society of New Long-term slip rates and fault interactions Zealand. under low contractional strain, Wanganui Basin, New Zealand. Tectonics 24(4): Nicol, A., J. Walsh, K. Berryman, Nodder, S.D., TC4004, doi: 10.1029/2004TC001699. 2005: Growth of a normal fault due to cumulative earthquake slip on geological Lamarche, G., Barnes, P.M., Bull, J.M. 2006. time-scales. Journal of Structural Geology Faulting and Extension Rate over the 27: 327-342. last 20,000 Years in the Offshore Whaka- tane Graben, New Zealand Continen- Nodder, S.D., Law, C.S., Mountjoy, J., Orpin, tal Shelf. Tectonics 25: TC4005. doi A., Pilditch, C.A., Marriner, A., Barnes, P.M. 10.1029/2005TC001886. and Franz, P. 2009. Geological and biogeo- chemical characteristics of a New Zealand Lamarche, G., Joanne, C. & Collot, J-Y. 2008. deep-water, methane-rich cold seep. Marine Successive, large mass-transport depos- Geology (submitted). its in the south Kermadec fore-arc basin, New Zealand: The Matakaoa Submarine Nodder, S. Mitchell, J., Dunkin, M., McKay, K.,
Page 100 Hydrates Options Analysis Pallentin, A. & Verdier, A-L. 2007. New sea- Proust, J.-N., Lamarche, G., Nodder, S.D., Kamp, floor features discovered on the Chatham P.J.J. 2005. Sedimentary architecture of Rise and Challenger Plateau by multi-beam a Plio-Pleistocene proto-back-arc basin: mapping during Ocean Survey 20/20. NZ Wanganui Basin, New Zealand. Sedimentary Geosciences ‘07. Geology 181: 107-145. Nodder, S.D., Law, C.S, Mountjoy, J., Orpin, Proust, J.-N., Migeon, S., Lamarche, G. & Neil, A., Pilditch, C.A., Marriner, A., Barnes, P.M. H.. 2008. Climate and Tectonic Changes in & Franz, P. 2009. Geological and biogeo- the Ocean Around New Zealand. EoS Trans- chemical characteristics of a New Zealand actions, American Geophysical Union 89 (31 deep-water, methane-rich cold seep. Marine (29 JULY 2008)): 277–288. Geology (submitted) Nodder, S.D., Lamarche, G., Proust, J-N. & Stirling, M. 2007. Characterizing earthquake recurrence parameters for offshore faults in the low strain, compressional Kapiti- Manawatu Fault System, New Zealand. Journal of Geophysical Research - Solid Earth 112: B12102.
Appendicies Page 101 Page 102 Hydrates Options Analysis APPENDIX 3: Oceanographic Voyages and Surveys Relevent to the East Coast of the North Island
[Source: NIWA]
Vessel Chief Scientist Departure Arrival CR1005 RV Tangaroa Lewis, K.B. 18-Jun-73 25-Jun-73 CR1013 RV Tangaroa Lewis, K.B. 17-Oct-73 23-Oct-73 CR1019 RV Tangaroa Cole, A.G. 07-Apr-74 10-Apr-74 CR1028 RV Tangaroa Brodie, J.W. 08-Jan-75 10-Jan-75 CR1049 RV Tangaroa Lewis, K.B. 16-Sep-76 24-Sep-76 CR1064 RV Tangaroa Dawson, E.W. 25-Aug-77 30-Aug-77 CR1082 RV Tangaroa Lewis, K.B. 14-Oct-78 14-Oct-78 CR1086 RV Tangaroa Dawson, E.W. 14-Dec-78 20-Dec-78 CR1139 RV Tangaroa Carter, L. 18-Nov-82 02-Dec-82 CR1147 RV Tangaroa Carter, L. CR2011 RV Rapuhia Lewis, K.B. 12-Sep-87 18-Sep-87 CR2045 RV Rapuhia Lewis, K.B. 03-Jul-91 08-Jul-91 CR3015 M.A. Lavrentyev Mitchell, J. 26-Oct-93 02-Nov-93 CR3044 RV Tangaroa Barnes, P. 4-Mar-98 17-Mar-98 CR8024 RV Rapuhia Wright, I.C. 11-Nov-88 21-Nov-88 CR8090 Rangatahi Carter, L 02-Aug-99 02-Aug-99 L783SP RV S.P. Lee Lewis, K.B. 29-Dec-83 31-Dec-83. TAN9809 RV Tangaroa Peter McMillan 18-Aug-98 20-Aug-98 TAN0106 RV Tangaroa Lewis, K.B. 04-May-01 17-May-01 TAN0113 RV Tangaroa Lamarche, G 05-Aug-01 16-Aug-01 TAN0215 RV Tangaroa Mitchell, J. 21-Aug-02 28-Aug-02 TAN0313 RV Tangaroa Barnes, P. 03-Aug-03 08-Aug-03 TAN0309 RV Tangaroa Mitchell, J. 9-Jun-03 15-Jun-03 TAN0314 RV Tangaroa Carter, L. 08-Aug-03 24-Aug-03 TAN0412 RV Tangaroa Barnes, P. 18-Oct-04 1-Nov-04 TAN0510 RV Tangaroa Mitchell, J. 14-Aug-05 24-Aug-05 TAN0512 RV Tangaroa Nodder, S. 30-Sept-05 07-Oct-05 TAN0607 RV Tangaroa Nodder, S. 04-July-06 10-Jul-06 TAN0612 RV Tangaroa Law, C. 27-Sept-06 03-10-06 TAN0613 RV Tangaroa Orpin A. 03-Oct-06 08-Oct-06 TAN0616 RV Tangaroa Rowden, A. 01-Nov-06 20-Nov-06 TAN0702 RV Tangaroa Nodder, S. 24-Jan-07 30-Jan-07 TAN0711 RV Tangaroa Nodder, S. 29-Aug07 08-Sept-08 TAN0804 RV Tangaroa Nodder, S. 27-April-08 04-May-08 TAN0810 RV Tangaroa Lamarche, G 24-Jul-08 13-Aug-08
*We note that this is not a comprehensive list and acknowledge in particular the omission of details of the RV Sonne cruises of 2007.
Appendicies Page 103 Page 104 Hydrates Options Analysis APPENDIX 4: Summaries of Key National Hydrates Research Programmes
Selected Summary of Gas Hydrate Research in the United States APPENDIX 4.1: Summary of the US Programme
Timeline Description Notes 2009 GoM JIP Leg II commences, a second field programme aboard the semi- submersible drilling vessel, the Helix Q4000, to test a variety of geologic/geophysical models for the occurrence of gas hydrate in sand reservoirs in deepwater GoM
2008 US DoE/NETL announces nine new methane hydrate research projects: 1 a) Gas Hydrates in the natural environment b) Gas Hydrate production technologies: • ConocoPhillips to field trial a method to produce free methane for production by injection of carbon dioxide into the reservoir as a replacement, on the Alaska North Slope site; • Monitoring of gas hydrate behaviour in the reservoir as a result of depressurisation from experimental production of the North Slope Borough site at Barrow, Alaska; c) Gas Hydrate exploration technologies: • Oregon State University to study of the impact of regional heat flows on continental margins as a tool to predict gas hydrate occurrences; • Scripps Institution of Oceanography to conduct CSEM surveys of 3 sites in the GoM to increase understanding of hydrate detection and characterisation using this remote sensing tool. 2008 The research vessel Roger Revelle completes an experimental survey of 2 gas hydrates in the Gulf of Mexico over 18 days, using state-of-the art controlled source electromagnetic (CSEM) methods. 30 seafloor magnetic and electronic recorders were deployed 94 times, broadcasting 103hrs of EM signals from a towed transmitter and generating 70Gb of data. The premise for this research project was well logs and lab experiments which demonstrated that hydrate was more electrically resistive than host sediments. 2008 US Congress passes an omnibus spending bill in December that provides 3 an additional US$3m (over the $12m in the previous year) in funding for NETL-managed gas hydrate R&D projects, including directed spending of $1m for the GoM hydrate consortium at the University of Mississippi 2008 US MMS (Minerals Management Service) releases preliminary results of 4 the Gulf of Mexico in-place natural gas hydrate assessment, suggesting a mean volume of 607 Tcm (21,444 Tcf) in-place over a gas hydrate province 450,000 km2 in size. A mean of 190 Tcm (6,710 Tcf) are suggested to be contained as relatively high concentration accumulations (‘sweet spots’) in relatively accessible sand reservoirs. 2007 US DoE releases An Interagency 5-Year Plan for Methane Hydrate 5 Research & Development: FY2007 to FY2011 2007 BPXA concludes an extensive data collection programme at a 6 stratigraphic test well at the Mt Elbert site on the Milne Point area of the Alaska North Slope. Key findings: • Operationally, the programme demonstrated the value of correct well-bore fluid selection and cooling; and the efficacy of some ‘first applications’ of technology at the site, including wireline retrievable coring and open-hole testing of hydrate bearing reservoir sands; • Scientifically, it validated gas prospecting methods developed by USGS when the programme encountered gas hydrates largely as predicted by the pre-well models.
Appendicies Page 105 2006 US DOE releases An Interagency Roadmap for Methane Hydrates 7, 8 Research and Development, which set out the interagency programme for hydrates R&D from 2000-2007 2006 Chevron USA makes data collected in 2004 from the ‘Tiger Shark’ area 9 available to the research community that provided the first confirmation of the presence of a thick zone of gas hydrate saturated sandstone in the Go M. The data also represented the first known full suite of geophysical well logs taken by the oil and gas industry across the gas hydrate stability zone in the Gulf. 2005 US Congress passes The Energy Policy Act (2005), which extends the 10 provisions of The Methane Hydrates R&D Act (2000) and provides production incentives (suspension/reduction of royalties), hydrates specific research funding within oil & gas programmes, and specific funding for hydrates research & development programme 2005 GoM Leg I, the first major field project by the ChevronTexaco JIP, 11, commences – a 35 day multi-hole drilling programme in the Keathely 12, Canyon & Atwater Valley in the Gulf of Mexico using the semi- submersible drilling vessel, the Uncle John. 2004 The National Research Council (NRC) Committee to Review the Activities 13 Authorised Under the Methane Hydrate Research and Development Act 2000, as mandated by the Methane Hydrate R&D Act (2000), publishes Charting the Future of Methane Hydrate Research In The United States 2002 US DoE funding commences towards the ChevronTexaco Joint Industry 14 Project (JIP) in the Gulf of Mexico, the largest and most prominent of the DOE funded hydrates projects. The project was focused on developing a better understanding the properties of gas hydrates in deepwater Gulf of Mexico and their effects on seafloor and well bore stability DoE contribution budget was USD$10.6m from 2002 to 2005 2002 Phase 1 of BP Exploration Alaska (BPXA) Project commences to 15 investigate gas hydrate reservoir characteristics, including distribution and concentration of hydrates, in the Eileen Field area on the Alaska North Slope DoE contributed USD$2.4m to 2004 vs $5.9m from BPXA 2002 Ocean Drilling Programme Leg 204 commences on Hydrate Ridge 16 offshore Oregon, USA. This drilling programme over 9 sites is focused on understanding the distribution of gas hydrate in marine sediments. DoE contributed USD$1.4m to the leg vs cost of the entire leg of approximately $12m 2002 The Mallik 2002 International Gas Hydrate Production Research Well 17 Programme commences in the McKenzie Delta in Canada, led by the Geological Survey of Canada (GSC) and the Japan National Oil Company (JNOC). The DoE Methane Hydrate R&D Programme was one of 8 partners in a multidisciplinary scientific and engineering programme 2000 US Congress passes the Methane Hydrate Research and Development 18, Act (2000), authorising DoE, in consultation with US Geological Survey 19, 20 (USGS), US Minerals Management Service (MMS), the National Oceanic & Atmospheric Administration (NOAA), the National Science Foundation (NSF) and the Naval Research Laboratory (NRL), to conduct methane hydrate research. Funding of USD$47.5m is authorised for 5 years from 2001 21 This Act mandates the establishment of two committees to provide 22 scientific oversight of the DoE Methane Hydrate R&D programme:
Page 106 Hydrates Options Analysis • The Methane Hydrate Advisory Committee (MHAC): to advise the Secretary of Energy on potential applications of methane hydrate; • The Interagency Coordinating Committee (ICC): to review the progress of the programme and make recommendations for future research 1999 US DoE releases A National Methane Hydrate Multi-Year R&D 23 Programme Plan 1998 US DoE releases A Strategy for Methane Hydrates Research and 24 Development 1988 US Department of Energy (DoE) commences a10-year, USD$8m 25 programme to study hydrates in the wild
1 Fire in the Ice: Methane Hydrates Newsletter. Fall 2008: 19-20 2FireNotes: in the Ice: Methane Hydrates Newsletter. Winter 2009: 4
3 1. Development Act 2000. National Research Fire in theFire Ice: in Methanethe Ice: HydratesMethane Newsletter. Hydrates Winter 2009: 19 Newsletter. Spring 2009: 1 Council of the National Academies: p58 4 Fire in the Ice: Methane Hydrates Newsletter. Spring 2008: 1-5 5 13. Fire in the Ice: Methane Hydrates The2. TechnicalFire in Coordinationthe Ice: Methane Team, HydratesNational Methane Hydrate R&D Programme. 2007. An Interagency 5-Year Plan for Methane HydratesNewsletter. Research and Fall Development 2008: 19-20: FY2007 to FY2011. US Department of Energy (DoE),Newsletter. Office Springof Fossil 2005:10 Energy. April 2007.
6 Fire3. in theFire Ice: in Methanethe Ice: HydratesMethane Newsletter. Hydrates Winter 2007: 1-4 14. Charting the Future of Methane Hydrate 7 The TechnicalNewsletter. Coordination Winter Team,2009: National4 Methane Hydrate R&D Programme. 2006.Research An Interagency in the United Roadmap States. for Methane 2004. (ibid). Hydrates Research and Development. US Department of Energy (DoE), Office of Fossil Energy. July 2006. 8 4. Fire in the Ice: Methane Hydrates 15. Charting the Future of Methane Hydrate US Department of Energy (DoE). 2007. Interagency Coordination on Methane Hydrates R&D Brochure. US Department of Energy Newsletter. Winter 2009: 19 Research in the United States. 2004: p57 (DoE), Office of Fossil Energy 9 Fire5. in Firethe Ice: in theMethane Ice: MethaneHydrates Newsletter.Hydrates Fall 2007: 12-13 16. Charting the Future of Methane Hydrate Newsletter. Spring 2008: 1-5 Research in the United States. 2004: p54 10 US Energy Policy Act 2005. Retrieved from http://frwebgate.access.gpo.gov/cgi- bin/getdoc.cgi?dbname=109_cong_bills&docid=f:h6enr.txt.pdf 6. The Technical Coordination Team, National 17. Charting the Future of Methane Hydrate 11 ChartingMethane the Future Hydrate of Methane R&D Hydrate Programme. Research 2007. in the United States. 2004. NationalResearch Research in Council the United (NRC) States. Committee 2004: to p52 Review the Activities Authorised Under the Methane Hydrate Research and Development Act 2000. National Research Council of the An Interagency 5-Year Plan for Methane National Academies: p58 18. Charting the Future of Methane Hydrate Hydrates Research and Development: 12 Fire in the Ice: Methane Hydrates Newsletter. Spring 2005:10 Research in the United States. 2004: p49 FY2007 to FY2011. US Department of Energy 13 Charting the Future of Methane Hydrate Research in the United States. 2004. (ibid). (DoE), Office of Fossil Energy. April 2007. 19. Charting the Future of Methane Hydrate 14 Charting the Future of Methane Hydrate Research in the United States. 2004: p57 Research in the United States. 2004: p2 7. Fire in the Ice: Methane Hydrates 15 Charting the Future of Methane Hydrate Research in the United States. 2004: p54 Newsletter. Winter 2007: 1-4 20. US Methane Hydrate Research and 16 Charting the Future of Methane Hydrate Research in the United States. 2004: p52 Development Act 2000. Retrieved from 17 8. The Technical Coordination Team, National Charting the Future of Methane Hydrate Research in the United States. 2004: p49 http://www.fossil.energy.gov/programs/ Methane Hydrate R&D Programme. 2006. An 18 Charting the Future of Methane Hydrate Research in the United States. 2004: p2 oilgas/hydrates/pl106-193.pdf Interagency Roadmap for Methane Hydrates 19 US Methane Hydrate Research and Development Act 2000. Retrieved from 21. Doyle, M.F. 1999. An act to provide the http://www.fossil.energy.gov/programs/oilgas/hydrates/pl106-193.pdfResearch and Development. US Department of Energy (DoE), Office of Fossil Energy. July research, identification, assessment, 20 Doyle, M.F. 1999. An act to provide the research, identification, assessment, exploration, and development of methane hydrate resources,2006. and for other purposes. US Congress House Report HR1753. Retrieved fromexploration, http://thomas.loc.gov/cgi- and development of methane bin/bdquery/z?d106:HR01753:@@@L&su. hydrate resources, and for other purposes. 9. US Department of Energy (DoE). 2007. 21 Charting the Future of Methane Hydrate Research in the United States. 2004: p18 US Congress House Report HR1753. Interagency Coordination on Methane 22 Retrieved from http://thomas.loc.gov/cgi-bin/ ChartingHydrates the Future R&D of Methane Brochure. Hydrate US Department Research in theof United States. 2004: p11 bdquery/z?d106:HR01753:@@@L&su. 23 ChartingEnergy the Future (DoE), of MethaneOffice Hydrateof Fossil Research Energy in the United States. 2004: p2 24 Charting the Future of Methane Hydrate Research in the United States. 2004: 22.p2 Charting the Future of Methane Hydrate 10. Fire in the Ice: Methane Hydrates 25 Research in the United States. 2004: p18 ChartingNewsletter. the Future ofFall Methane 2007: Hydrate12-13 Research in the United States. 2004: p18 23. Charting the Future of Methane Hydrate 11. US Energy Policy Act 2005. Retrieved Research in the United States. 2004: p11 from http://frwebgate.access.gpo.gov/ cgi-bin/getdoc.cgi?dbname=109_cong_ 24. Charting the Future of Methane Hydrate bills&docid=f:h6enr.txt.pdf Research in the United States. 2004: p2
12. Charting the Future of Methane Hydrate 25. Charting the Future of Methane Hydrate Research in the United States. 2004. Research in the United States. 2004: p2 National Research Council (NRC) Committee 26. Charting the Future of Methane Hydrate to Review the Activities Authorised Under Research in the United States. 2004: p18 the Methane Hydrate Research and
Appendicies Page 107 Page 108 Hydrates Options Analysis Selected Summary of Gas Hydrates Research in India
Timeline Description Notes 2009 – 2010 NGHP Expedition 02 may be constituted to drill and log several of the most [7] promising gas hydrate sand-dominated prospects April 2009 (Indian) National Institute of Ocean Technology NIOT to start coring in [8] Krishna-Godavari basin. Vessel “ Sagar Nidhi” ex Fincantieri shipyards.
Indo – Russian Centre for gas hydrates Joint collaborative research activity shall deliver new pathways for the gas hydrate studies which is still at its infancy in global scenario. Following are the major projects under the Centre.
1. Geology of gas hydrates (NIO) 2. Natural processes involving gas hydrates (NGRI) 3. Estimations and modeling of gas hydrates resources (NGRI) Physical, chemical, mechanical and other basic properties of gas 4. hydrates (NGRI) Technology of recovery, purification and transportation of gas from 5. gas hydrates deposits (NIOT) 6. Ecological aspects of gas hydrates processing (NIO) 7. Economics of gas hydrates resources exploitation (NIO) 8. Joint research of Gas Hydrate in Lake Baikal and its application to Indian conditions (NIOT) 9. Design and develop necessary instruments and observing devices to address above mentioned scientific and technical problems (NIOT)
To implement the above projects an “Indo Russian Centre for Gas Hydrate Studies (IRCGHS)” is established at NIOT, Chennai as per the Memorandum of Understanding (MoU) between the Russian Academy of sciences (RAS), Russia and the Department of Science and Technology (DST), India.
17 July 2008 Mr Jairam Ramesh, Union Minister of State for Power: “I don’t see it (gas [5] from gas hydrates) coming in the next five years, but I am sure that in the next 10 years, it will be an important source of energy. According to the 1 DGH , the delay in the programme taking off was because of “non availability of a suitable deepwater drill-ship with onboard laboratories and experienced staff 6 – 8 Feb 2008 NGHP Expedition-01 results reported (ref 7): [7]
� Delineated and sampled one of the richest marine gas hydrate
accumulations ever discovered (Site NGHP-01-10 in the Krishna-Godavari
Basin) (depth 950 m and 40 mbsf.). [9]
� Discovered one of the thickest and deepest gas hydrate occurrences yet known (offshore of the Andaman Islands, Site NGHP-01-17) which revealed gas-hydrate-bearing volcanic ash layers as deep as 600 meters below the seafloor.
� Established the existence of a fully developed gas hydrate system in the Mahanadi Basin of the Bay of Bengal.
� Most of the gas hydrate occurrences discovered during this expedition appear to contain mostly methane which was generated by microbial processes. However, there is also evidence of a thermal origin for a portion
1 Directorate General of Hydrocarbons
Appendicies Page 109 of the gas within the hydrates of the Mahanadi Basin and the Andaman offshore area.
NGHP Expedition 01 has shown that conventional sand and fractured-clay reservoirs are the primary emerging economic targets for gas hydrate production in India. Because conventional marine exploration and production technologies favor the sand-dominated gas hydrate reservoirs, investigation of sand reservoirs will likely have a higher near-term priority in the NGHP program.
Directorate General of Hydrocarbons Director General and NGHP Program Coordinator V. K. Sibal said, "…The Indian gas hydrate program has been fortunate in having the benefits of a truly global collaboration in the form of the first gas hydrate expedition in Indian waters. ... I believe that the time to realize gas hydrate as a critical energy resource has come."
Total cost $37M.
28 April - 19 Scientific Research Drill Ship “JOIDES Resolution” sails from Mumbai, August 2006 commences core drilling, with limited support from US DOE. The ship will explore prospective gas hydrate fields along the western coast in Konkan, the Krishna Godavari basin, Mahanadi and areas around the Andaman seas. he exploration will be conducted under India's National Gas Hydrate 2 Program (NGHP) of the Directorate General of Hydrocarbons September 2007 Indo-Russian program collects 1.2m core sample of Gas Hydrate from [10] Lake Baikal (Rus). Eight joint projects underway. 1 May 2005 India's Union Minister for Petroleum and Natural Gas, is quoted as saying [5] "that total prognosticated resource of offshore gas hydrates in India was 1,894 trillion cubic metres, 1,900 times the country's current gas reserves" 1998 Resource estimation and delineation of prospective areas for methane hydrate has been done Krishna–Godavari and Andaman–Nicobar Islands may be explored for hydrates. About 7.5 Tcm of methane is estimated in an area of about 80,000 km2 from Indian deep offshores, which is about 5 times the total conventional [2] gas reserves of the country Indian continental margins (especially on the east coast in Bay of Bengal) with excess sedimentation rate and organic carbon content than required for methane hydrate production are the potential sites for methane hydrate [3] exploration. The physical parameters (temperature, pressure, salinity) controlling the formation of methane hydrate are also met at the site at a water depth ranging from 650 m (east coast) to 750 m (west coast)
2 NGHP Expedition 01 was planned and managed through Notes: a collaboration between the Directorate General of Hydrocarbons (DGH) under the Ministry of Petroleum and [1] A. Singh and B. D. Singh, Birbal Sahni Natural Gas (Government of India), the U.S. Geological Survey (USGS), and the Consortium for Scientific Methane Institute of Palaeobotany Hydrate Investigations (CSMHI) led by Overseas Drilling Limited (ODL) and FUGRO McClelland Marine Geosciences [2] Chandra, K., Indian J. Geol., 1997, 69, (FUGRO). The platform for the drilling operation was the 261–281 research drill ship JOIDES Resolution (JR), operated by ODL. Much of the drilling/coring equipment used was [3] Rao, Y. H., Reddy, B. L., Khanna, R., Rao, provided by the Integrated Ocean Drilling Program (IODP) through a loan agreement with the US National Science T. G., Thakur, N. K. and Subrahmanyam, C., Foundation (NSF). Wireline pressure coring systems and Curr. Sci., 1998, 74, 466–468 supporting laboratories were provided by IODP/Texas A&M University (TAMU), FUGRO, USGS, U.S. Department [4] K Nath, Dept of Chemical Engineering, G.H. of Energy (USDOE) and HYACINTH/GeoTek. Downhole logging operational and technical support was provided Patel College of Eng and Tech, Gudjarat In. by Lamont-Doherty Earth Observatory (LDEO) of Columbia Published in J Surface Sci Tech 23 (2007) University No. 1-2 pp 59 - 72 [5] http://www.thehindubusinessline.com [6] Indian National Gas Hydrate Program Gas Hydrate Conference held February 6-8, 2008 in New Delhi, India
Page 110 Hydrates Options Analysis [7] http://energy.usgs.gov/other/gashydrates/in- dia.html [8] http://timesofindia.indiatimes.com/Earth/In- dia_goes_deep-sea_diving_for_clean_fuel/ articleshow/3653330.cms [9] NIOT, http://www.niot.res.in/projects/gas/ gashydrates_introduction.php [10] Indian Department of Science and Technol- ogy: http://dst.gov.in/about_us/ar05-06/in- ter-st.htm
Appendicies Page 111 Page 112 Hydrates Options Analysis Selected Summary of Gas Hydrates Research in South Korea
Timeline Description Notes
Early 2009 SK intends in participating in US pilot project at Alaska North Slope [11], [14]
Sep/Oct 2008 Knowledge-Economy Minister Lee Youn-Ho [14] attended a meeting of the National Assembly’s Special Committee on the Stability of People’s Livelihood and said, “If the gas hydrates near Dokdo are developed, it would help safeguard our territorial rights and secure new energy sources that we currently lack in our country.” September 2008 Research into methane hydrate extraction using coincident CO2 [19] sequestration published in Fluid Phase Equilibria 274 (2008) 68–72. Research institutions: Gasification Research Center, Korea Institute of Energy Research,, Department of Environmental Engineering, Kongju National University, Zero Emission Technology Research Center, Korea Institute of Energy Research
Other Institutions include: Korea Adv Inst Sci & Technol, Dept Chem & Biomol Engn, Korea Inst Geosci & Mineral Resources 18 April 2008 Energy Secretary Samuel Bodman and South Korea Minister Lee Youn- [11], ho signed a Statement of Intent to exchange information on gas hydrate [14] topics and technologies [check date] Research being conducted at Korea Advanced Institute of Science and [17] Technology (KAIST), in association with Georgia Institute of Technology, supported by Basic Research Program of the Korea Science & Engineering Foundation (KOSEF; Grant No. R01-2006- 000-10727-0) and the DOE Joint Industry Project for Methane Hydrate administered by Chevron
(Also at Seoul National University and Pusan University)
1 23 Nov 2007 SK government (Ministry of Commerce, Industry and Energy ) reports [12] discovery of 600million MT gas hydrate, 99% methane, 135km northeast of Pohang (East Sea = Sea of Japan), near Donghae gas field in Ulleung Basin. Supply estimated at 30 years consumption. This is in close proximity to the island of Dokdo which is the crux of an ongoing territorial dispute between SK and Japan (and which seems to receive a lot of press including on Arirang TV)
Ship: 2,000-ton South Korean oil drilling ship Tamhae 2 (3D seismic research vessel) “The drill hit the sea bottom at 2,072 meters and found a gas hydrate deposit after digging several more meters,” Lee said, disclosing that the gas pool appeared 6.5 meters below the sea bed. [16]
130m thickness is much greater than Japanese, Indian and Chinese reserves
(SK LNG imports increased 18% in the year to April 2008) Dec 2006 Signing of the ``8th Executive Protocol of Italy-Korea scientific and [18] technological cooperation (2007-2009), including joint research into Integrated analysis of geophysical data to characterise the gas hydrate reservoir offshore South Shetland Margin (National Institute of Oceanography and Experimental Geo physics, Trieste/Korea Polar Research Institute, Ansan)
1 http://www.mke.go.kr/ (South Korean Ministry of the Knowledge Economy - Korean language)
Appendicies Page 113 2005 – 2007 The Korean government invested 66.7 billion won [15] (US$66.87 million) from 2005 to 2007 to find and determine the size of hydrate deposits, and plans to spend an additional 85 billion won through 2011 July 2005 SK Government forms national development team with state owned [12] Korea National Oil, Korea Gas and the Korea Institute of Geoscience and Mineral Resources. $243.5million earmarked for the project until 2014
Notes: [11] http://www.netl.doe.gov/technologies/oil- gas/FutureSupply/MethaneHydrates/MH_ Highlights_Archive.html [12] http://www.platts.com/Natural%20Gas/ Resources/News%20Features/asiapacificlng/ korea.xml [13] http://www.orbit6.com/futurism/clath.htm [14] Korea Gas (Kogas) newsletter “Kogas World”, September/October 2008. http:// www.kogas.or.kr/ENG/media/news_letter.jsp [15] ibid., May/June 2008 [16] Reported in the People’s Daily 23 November 2007 http://english.peopledaily. com.cn/90001/90777/6307973.html [17] http://geosystems.kaist.ac.kr/ Kwon%20Cho%20Santamarina_ hydrate%20dissociation.pdf [18] Reported in the Korea Times, http:// www.koreatimes.co.kr/www/news/ special/2008/09/211_4039.html [19] Published by Elsevier Science, retrieved through Science Direct database
1 http://www.mke.go.kr/ (South Korean Ministry of the Knowledge Economy - Korean language)
Page 114 Hydrates Options Analysis Selected Summary of Gas Hydrate Research in Japan
Timeline Description Notes
2016 Estimated full production start date, corresponding with completion of 16- [20] year test and development programme 2012 – 2016 Preparation for Commercial Production: Phase 3 of Japan’s Methane [22] Hydrate Exploitation Program 2009 (- 2012) Test drilling scheduled /in Japanese Waters (Nankai Trough) (Phase 2 of [20]/, Japan’s Methane Hydrate Exploitation program) [21], [22]
[check date] Calculated estimates of methane hydrate and natural gas deposited in [26] Nankai Trough are between16 to 27 trillion m³. MH site concentrations favour southwest margin cf. northeast. 31 Oct 08 Japanese Government Headquarters for Ocean Policy decides to apply to [32] the UN for a larger continental shelf claim October 2008 Japanese and Indian Economics Ministers meet, issue a statement of [29] cooperation on several development projects (not explicitly including methane hydrates) August 2008 UPI Asia reports JOGMEC admits that only half of the Nankai Trough [35] methane hydrate store is recoverable using conventional drilling techniques, owing to lower densities. Ryo Matsumoto (see below) also indicates that drilling may not go ahead, if current suspicions that only 30% of Nankai Trough deposit is recoverable within 8 years. Matsumoto also favours drilling in the Sea of Japan (Korean East Sea), highlighting shallower depths (3200ft water and 300ft seabed in sand cf. 6500ft water and 700ft seabed in mud in Nankai Trough). BUT drilling in mud requires different drilling techniques to that already proven. Aoyama (see below) analyses that increased US-Japanese cooperation may be the Japanese government’s goal, in favour of US cooperation with Korea, which would lessen the chances of Japan controlling the Sea of Japan/Korean East Sea deposit. July 2008 US Board on Geographic Names, removes title of Korean ownership of [36] Dokdo/Takeshima Island in East Sea/Sea of Japan 14 April 2008 Japanese (Jogmec)/Canadian MH drilling expedition report methane [21] production for six straight days (Mallik site) (Hot water injection production [23] method) December 2007 Inpex Corporation releases statement of involvement in Jogmec’s [30] – March 2008 “Feasibility Study for Natural Gas Hydrate Ocean Transportation Chain”, with the aim of increased monetization of stranded natural gas resources. December 2007 Nankai Trough MH deposit (30mi from main Honshu Island) estimated at [20] 39 Tcf, water depth 500m [23] (39 Tcf = 1.1 Tm³). Estimated total 7.4 Tm³ = 262 Tcf, thought to be world’s [21] largest [27]
“Conventional drilling technologies won’t be applied for methane hydrate exploitation.’’ – K Yokoi (see below) [20] Depressurising shown to be most efficient drilling method [20] April 2007 Jogmec and Canadian Government complete first round of drilling tests. [20] Results unknown, subject to confidentiality agreement 2006 Japanese LNG imports total 3.03 Tcf, value $23.3B [20] 2006 Matsumoto (see below) and colleagues discover methane gas bubbles [20] rising from ocean floor 2005 Japanese government estimates MH drilling to be economically viable [20] when oil trades above $54/barrel 2004 Methane Hydrate deposit calculated (estimated) at 250 Tcf in-place, [25] located only in sand layers, filling pore spaces between grains. Methane Hydrate primarily biogenic, concentrated from lower limit of stability zone upward 70m
Appendicies Page 115 2003 Presentation given at Geological Society of America Seattle Annual [28] Meeting, by Y Okuda of AIST (see below) identifies Nankai Trough as region which is “normally difficult for convention oil and natural gas fields to exist”. Goes on to identify geological phenomena affecting the change of methane hydrate deposits 25 Dec 2001 – 14 Japex Canada and JNOC participate in first production well drilling at [31] Mar 02 Mallik Site, Mackenzie Delta, Canada 2001 – 2002 Seismic Survey Campaign undertaken in Nankai Trough. 2802km² 2-D [24] surveyed, 1960km² 3-D surveyed 2001 MH21 Research Consortium for Methane Hydrate Resources in Japan [22] (“MH21 Research Consortium”) established, headed by S Tanaka (see below) to implement Phase 1 of Japan’s MHEP 3 Subsidiary Groups: Research Group for Resources Assessment (Jogmec (see K Yokoi below)); Research Group for Production Method and Modelling (National Institute of Advanced Industrial Science and Technology (AIST)); Research Group for Environmental Impact (Engineering Advanced Association of Japan (ENAA)) 2001 – 2008 Phase 1 of Japan’s Methane Hydrate Exploitation Program (MHEP) [22] July 2001 Document “Japan’s Methane Hydrate Exploitation Program” prepared by [22] Advisory Committee for National Methane Hydrate Exploitation Program, within Ministry of Economy Trade and Industry, led by Shoichi Tanaka (see below).
“The project is intended to promote technical development for economical drilling, production and recovery of methane hydrate, and to facilitate its utilization and contribution to the long-term stable energy supply. The project defines methane hydrate as a future energy resource that is expected to exist in large amounts offshore around Japan.”
Goals: 1. Understand the conditions and features of methane hydrate existing offshore around Japan. 2. Estimate the amount of methane gas in the hydrated area. 3. Select methane hydrate resource fields from the potential sea areas and study their economic feasibility. 4. Implement methane hydrate production tests in the selected resource fields. 5. Develop technologies for commercial production. 6. Establish the exploitation system considering environmental preservation. 1 Apr 01 New Energy Resources (NER) Research Centre established at Kitami [33] Institute of Technology 1999 Japanese scientists drill 3 wells at a Tokyo Bay site, 50km off Japanese coast at water depth 950m. Depth to BSR 290mbsf, 1240m bmsl. MH occurred between 1150 and 1210m, filling 20% of volume and 80% of pre space. Volume calculated at 525Mm³/km². 1995 - Japan National Oil Corporation (JNOC, obsolete) begins research into [23] Methane Hydrates, spends $60M. [34] 1987 - Ryo Matsumoto, University of Tokyo begins MH research [20]
Notes: [23] Japan Oil, Gas and Metals National Corpora- tion (Jogmec) website: http://www.jogmec. [20] Bloomberg, “Japan Mines `Flammable Ice,’ go.jp/english/activities/technology_oil/promot- Flirts With Environmental Disaster”, 25 ing.html December 2007. http://www.bloomberg.com/ apps/news?pid=newsarchive&sid=aiUsVKaqD [24] JNOC Presentation at Rice University http:// A7g www.rice.edu/energy/publications/docs/Fire_ in_Ice_Tsuji.pdf [21] The Times Online, “Japan’s Arctic methane hydrate haul raises environment fears”, 14 [25] Search and Discovery Article #10064 (2004) April 2008. http://www.timesonline.co.uk/tol/ “An Appraisal Project for Offshore Methane news/environment/article3740036.ece Hydrate in Japan”, Takatoshi Namikawa, Masaru Nakamizu, Koji Ochiai, and Yoshihiro [22] MH21 Research Consortium website, http:// Tsuji (all JNOC). http://www.searchanddiscov- www.mh21japan.gr.jp/english/mh21-2.html ery.net/documents/2004/namikawa/index.htm
Page 116 Hydrates Options Analysis [26] NETL, US DoE: http://www.netl.doe.gov/tech- [31] NETL, US DoE. http://www.netl.doe.gov/tech- nologies/oil-gas/FutureSupply/MethaneHy- nologies/oil-gas/publications/Hydrates/confer- drates/about-hydrates/nankai-trough.htm ence_pdfs/JIP_Dallimore_Mallik.pdf
[27] NGV Global, “USA and Japan Agree to Joint [32] The Yomiuri Shimbun, “Government to make Methane Hydrate Study”, 23 May 2008. larger continental shelf claim”, 1 November http://www.ngvglobal.com/en/technology/usa- 2008. http://www.yomiuri.co.jp/dy/national/ and-japan-agree-to-joint-methane-hydrate- 20081101TDY01303.htm study-01891.html [33] New Energy Resources (NER) Research Cen- [28] Presentation to the Geological Society of tre, Kitami Institute of Technology. America, Seattle Annual Meeting, 2-5 Nov http://www-ner.office.kitami-it.ac.jp/index- 2003. Y Okuda, AIST. http://gsa.confex.com/ e.html gsa/2003AM/finalprogram/abstract_67237. [34] RAND Corporation: “Fire and Ice”. http://www. htm rand.org/scitech/stpi/ourfuture/GameChangers/ [29] Japanese Ministry of Economy, Trade and fireice.html Industry Joint Statement (with Indian Coun- [35] UPI Asia, “Japan pursues new energy source”, terpart), 21 October 2008. http://www.meti. 28 August 2008. http://www.upiasia.com/ go.jp/english/press/data/nBackIssue20081021_ Politics/2008/08/28/japan_pursues_new_en- 01.html ergy_source/4062/ [30] Inpex Corporation, Awarded a contract for the [36] Reuters, “U.S. backs away from S.Korea- “Feasibility study of the NGH ocean transpor- Japan island dispute”, 30 July 2008. tation chain” by JOGMEC, 5 December 2007. http://www.reuters.com/article/worldNews/ http://www.inpex.co.jp/english/news/inpexhd/ idUSN3029250220080730 pdf/e20071205.pdf Personalities
Personalities Aoyama, Chiharu Director of the Natural Sciences section at Japan's Independent Institute Co., Ltd. Aoyama,Hashiba, ChiharuYoshifumi DirectorDeputy Directorof the Natural of Petroleum Sciences and section Natural at GasJapan's Division, Independent Japanese Institute Ministry Co., of Ltd.
Hashiba, Yoshifumi DeputyEconomy, Director Trade of and Petroleum Industry and Natural Gas Division, Japanese Ministry of Matsumoto, Ryo Economy,University Tradeof Tokyo and Scientist. Industry Attributes natural gasification of methane hydrates
Matsumoto, Ryo Universityfollowing seismic of Tokyo event Scientist. to be Attributesa major cause natural of globalgasification mass ofextinction. methane hydrates Nikai, Toshihiro followingMinister of seismic Economy, event Trade to be and a major Industry, cause Japan of global mass extinction. Nikai,Okuda, Toshihiro Yoshihisa MinisterGeological of Economy,Survey Japan, Trade National and Industry, Institute Japan of Advanced Industrial Science and
Okuda, Yoshihisa GeologicalTechnology Survey (AIST) Japan, National Institute of Advanced Industrial Science and Okui, Toshiharu TechnologyDeputy General (AIST) Manager of Gas Resources, Tokyo Gas Co., (largest Japanese
Okui, Toshiharu Deputydistributor General of natural Manager gas) of Gas Resources, Tokyo Gas Co., (largest Japanese Tanaka, Shoichi distributorProfessor Emeritus,of natural gas)University of Tokyo. Led Advisory Committee for National
Tanaka, Shoichi ProfessorMethane Hydrate Emeritus, Exploitation University Programof Tokyo. in Led 2001. Advisory Committee for National Yokoi, Kenichi MethaneTeam Leader Hydrate of Methane Exploitation Hydrate Program Research in 2001. Project, Japan Oil, Gas and Metals
Yokoi, Kenichi TeamNational Leader Corporation of Methane (Jogmec, Hydrate govt-controlled) Research Project, Japan Oil, Gas and Metals National Corporation (Jogmec, govt-controlled)
Inpex Corporation http://www.inpex.co.jp/�nglish/business/rd/rd01.html InpexJapan Corporation Drilling Company http://wwwhttp://www.jdc.co.jp/english_site/aboutjdc.html.inpex.co.jp/�nglish/business/rd/rd01.html. Company in charge of Japan Drilling Company http://www.jdc.co.jp/english_site/aboutjdc.html"Technical Verification Tests and Experiments",. Company "FEED (Front in charge End of "TechnicalEngineering Verification and Design) Tests for Offshoreand Experiments", Methane Hydrate"FEED (Front Production End Test", and
Engineering"Feasibility Study and Design) of the Methane for Offshore Hydrate Methane Development Hydrate ProductionSystem" Test", and Japan's Independent Institute "Feasibilityhttp://www.dokken.co.jp/en/cp/index.html Study of the Methane Hydrate Development System"
Japan'sCo., Ltd. Independent Institute http://www.dokken.co.jp/en/cp/index.html Co.,Japanese Ltd. oil, Gas and Metal (Jogmec) http://www.jogmec.go.jp/�nglish/
JapaneseNational Corporation oil, Gas and Metal (Jogmec) http://www.jogmec.go.jp/�nglish/ NationalJapan Petroleum Corporation Exploration (Japex) http://www.japex.co.jp/�nglish/technology/methane.html#
JapanCo. Ltd. Petroleum Exploration (Japex) http://www.japex.co.jp/�nglish/technology/methane.html#
Co.MH21 Ltd. Research Consortium MH21Ministry Research of Economy, Consortium Trade and http://www.meti.go.jp/english/index.html (see Agency for Natural Resources
MinistryIndustry of Economy, Trade and http://www.meti.go.jp/english/index.htmland Energy) (see Agency for Natural Resources IndustryNew Energy and Industrial and(NEDO) Energy) http://www.nedo.go.jp/english/ NewTechnology Energy Developmentand Industrial (NEDO) http://www.nedo.go.jp/english/
TechnologyOrganisation Development OrganisationNew Energy Resources (NER) http://www-ner.office.kitami-it.ac.jp/index-e.html . Features international
NewResearch Energy Centre Resources (NER) http://www-ner.office.kitami-it.ac.jp/index-e.htmlcollaboration with Russia, Belgium, Germany and . Features Korea. international ResearchSchlumberger Centre in Japan collaborationhttp://www.slb.co.jp/english/company/index.htm with Russia, Belgium, Germany and Korea. Schlumberger in Japan http://www.slb.co.jp/english/company/index.htm
Appendicies Page 117 Page 118 Hydrates Options Analysis APPENDIX 5: Future Assessment Work
The objective in designing further capable of providing high quality velocity investigations is to produce a sufficiently control and advanced specific processing. detailed and accurate predictive model to 2. Hi-frequency seismic data for evaluating support engineering studies towards a specific spatial variability of hydrate and free development scheme and a subsequent gas, as well as associated structural and investment decisions. stratigraphic controls on GH formation and distribution. Key resource issues to be considered 3. Selected 3D seismic data acquisition at include: selected sites of inferred methane hot 1. the spatial distribution of gas hydrates spots. and the thickness of the GH stability zone 4. Very-high frequency seismic profiling (GHSZ). for substrate characterisation at such 2. The thermal structure in the upper 1 km of potential hot spots, particularly if seafloor subsurface for improved GH modelling. engineering is to proceed. 3. The potential volume of the methane 5. Wider coverage of high-resolution (30 kHz) resource. multibeam bathymetric data to underpin resource evaluation, seismic planning 4. How to improve estimates of methane and interpretation, sample planning, and concentrations in the GHSZ, both from future submarine engineering planning and seismic records or surface features activities. (morphology, chemistry, biology). 6. High resolution mapping of the spatial 5. Methane source and chemistry, via extent and ecological structure of analysis of methane gas, fluids, fauna and ephemeral seep communities as an carbonate at seabed seep sites, indicator of hydrate resource size. 6. How to improve identification of methane 7. Widespread seafloor sampling coupled with concentration sweet spots. photography and video for characterisation 7. The physical framework of the gas of gas hydrate distribution, providing hydrates, including relationships between samples for relevant sedimentary and gas hydrates and free gas concentrations geotechnical analysis. Currently gas to bathymetric features, to sedimentation hydrates recovered from only one site. cover and rate, and to geological structures 8. Bottom water methane mapping and stratigraphy that provide permeability, focussing fluid and gas flow from deeper 9. Physical sampling by exploration drilling sources to reservoir, and from the GH combined with borehole measurements reservoir to the seafloor at sites of natural will be required to appraise individual leakage, reservoirs.
8. Where the resource is currently perturbed Environmental data requirements with free gas seepage at the seabed, and what flow rates at such sites of leakage include: occur naturally, 1. Further exploration using high resolution acoustics and seabed video surveys to 9. Capability to map methane distribution in assess the full extent of active seep sites bottom waters via in situ sensors in towed on the Hikurangi Margin. array 2. Identification, quantification and mapping Resource data requirements include: of chemosynthetic assemblages (from bacteria to megafauna) to evaluate 1. Widespread 2D seismic reflection data composition and spatial distribution, with various frequency contents and image and evolutionary relationships with other resolution, including industry-standard, biogeographic regions. long streamer multichannel seismic data
Appendicies Page 119 3. Trophic studies using stable isotope analysis to determine rates of carbon uptake and how important the transfer of biological production from chemosynthetic assemblages is to non-seep fauna in surrounding habitats. 4. Research to assess the age of assemblages, degree of population connectivity between sites, and likely rates of recolonisation following disturbance.
Page 120 Hydrates Options Analysis APPENDIX 6: Preliminary Well Development Plan (PREPARED BY TRANSFIELD WORLEY SERVICES)
Appendicies Page 121 Page 122 Hydrates Options Analysis
CAENZ
Preliminary Development Plan New Zealand Offshore Gas Hydrates
501102-RPT-X0001
March 2009
Transfield Worley Ltd 25 Gill Street, New Plymouth 4310 PO Box 705, New Plymouth 4340 Telephone +64-6-759 6300 Facsimile +64-6-759 6301 www.transfieldworley.co.nz © Copyright 2009 Transfield Worley Ltd
CAENZ PRELIMINARY DEVELOPMENT PLAN NEW ZEALAND OFFSHORE GAS HYDRATES
CONTENTS 1. INTRODUCTION ...... 1 2. SELECTION OF DEVELOPMENT PLAN...... 2 3. BASIC PROCESS DESCRIPTION...... 5 4. BASIC SUBSEA WELL AND PIPING LAYOUT ...... 6 5. CHOICE OF PRODUCTION “PLATFORM” ...... 7 6. DEVELOPMENT SCHEDULE ...... 8
APPENDICES APPENDIX 1 CAPEX APPENDIX 2 OVERVIEW DIAGRAM OF WORLDWIDE DEEPWATER DRILLING CAPABILITY APPENDIX 3 SUBSEA TIE BACK DISTANCES APPENDIX 4 TIME PROGRESSION OF SPARS, TLPS AND COMPLIANT TOWERS IN DEEP WATER APPENDIX 5 SPAR & TLP CYCLE TIME AANALYSIS (DISCOVERY TO FIRST GAS) APPENDIX 6 DEVELOPMENT SCHEMATICS APPENDIX 7 PROCESS SCHEMATICS APPENDIX 8 VECTOR GAS GRID APPENDIX 9 CROSS COUNTRY PIPELINES APPENDIX 10 DEEPWATER RIG RATES AND AREAS OF OPERATION
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CAENZ PRELIMINARY DEVELOPMENT PLAN NEW ZEALAND OFFSHORE GAS HYDRATES
1. INTRODUCTION
Gas hydrates are ice-like structures wherein molecules of water and methane gas are combined into a single lattice structure - and retained in that state by defined combinations of temperature and pressure- as shown on the appropriate phase diagram.
Huge deposits are located in Artic permafrost, and clathrates are also found below the seabed in some temperate regions of the world.
Void-filling gas hydrate deposits have been detected in sediments along New Zealand’s deep water margins (800m -1000m) at depths around.300m below seabed.
It has been estimated that over an area of approx 50,000km2 off the North Island East coast, there are about 23 trillion m3 of recoverable reserves, with economically recoverable reserves probably greater than the Maui gas field. This study is based on the premise that a “sweet spot” exists 20 km off the Wairarapa coast.
While no gas is produced from clathrates anywhere in the world, considerable efforts are currently being made in several locations in order to do so. Given that the bulk of the required production technology is basically the same as required for natural gas production, there appear to be few insurmountable technical problems.
The main obstacle is cost - conventional gas wells work at considerably higher pressures, and by producing considerably more gas per well, they are economically more attractive.
When a country has no natural gas, or has depleted its conventional low cost gas reserves, the conventional method of alleviating gas shortage is by importing LNG.
As LNG is considerably more expensive than well gas, the economic decision whether to consider gas hydrate development is based on a cost comparison with relatively expensive imported LNG.
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CAENZ PRELIMINARY DEVELOPMENT PLAN NEW ZEALAND OFFSHORE GAS HYDRATES
2. DEVELOPMENT PLAN
Preliminary Proving/Testing Phase
It is normal procedure on oil/gas development projects to demonstrate the viability of the project before major expenditure of the magnitude indicated in this report is contemplated.
To do this, it is necessary to produce a well or series of wells for sufficient time to convince project financiers that flow sheet design production can be expected to be achieved and that total gas production will render the project viable and bankable. Such a procedure is doubly necessary for hydrate wells, because not only are we dealing with frontier technology, but experience to date has shown that the geological composition of down-the-hole hydrate can vary widely. A CT scan of a “hydrate rich” core is essentially a 3D representation of the inter-granular porosity before it was filled by water; which in the presence of methane turned into hydrate.
Every cubic metre of hydrate disassociates into a 0.9m3 of water and a 160-180m3 of methane. If water has to be removed to reduce pressure so as to maintain gas production, voids will be created adjacent to the well. Should slumping and reservoir collapse occur, the potential is there to both damage the well-casing and to allow re-establishment of the pressure/temperature phase regime that maintains hydrate in the solid state.
Extended testing is the standard method of gaining confidence in such matters – with the gas usually being flared for several months.
The wells themselves are relatively shallow (only 200-300m deep) and would not be particularly expensive. The cost allowed for two off test wells is US$5 million each.
These could be drilled with a simple rig, but unfortunately the day rate for a suitable rig is not determined by the well characteristics, but by the 1000m of water depth. Appendix 10 shows the current day rates for blue-water rigs, suitable for drilling in ocean depths between 3000ft and 7500ft – and with the dynamic positioning capabilities required to be able to stay on location for extended periods.
The rig would need to be fitted out with suitable process testing equipment – very similar in principle to that required for the 10PJ case-water separation, gas lift (probably), chemical injection equipment, flaring gear and accommodation for 24 hr operations on a long-term basis. An allowance has been made for typical gear that might be envisioned.
The historical daily rate for a rig in the 3000-4000ft depth range has varied form US$80 k/day in2004 to US$420 k/day in late 2008 when oil was over $150/bbl. With the recent correction in the cost of a barrel of oil, rig rates have slipped and can be expected to ease further.
The current day rate for a suitable blue-water rig is around US$320 k/day, but it would be reasonable to expect that a lower rate could be negotiated for a drilling and extended test programme.
It is a matter of opinion as to how long a test need be, but the minimum would be until such time that the preferred production methodology has been identified for stable gas production. This would require establishing the recycle rate for gas lift (if any, the optimum cocktail of chemicals, whether
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CAENZ PRELIMINARY DEVELOPMENT PLAN NEW ZEALAND OFFSHORE GAS HYDRATES some form of heating was required and whether void refilling was necessary to prevent reservoir collapse.
It is most unlikely that all this could be achieved inside six months and it would be prudent to assume a longer period. As a first-pass guess, the cost given in this report allowed nine months for a combined drilling and testing period @ US$250k per day, plus a mob/ demo of US$7 million each way from SE Asia.
Also required are two ocean going support vessels @ US$50k per day – one remaining permanently on location for support, while the other ships supplies as required from either Wellington or Napier. Mob/demob from SE Asia is approximately US$1 million each way for each vessel.
The cost of supplying chemicals is assumed to be included in the day rate. Methanol and glycol are not particularly expensive and can be delivered by service vessel. Crew change would be by helicopter.
It is possible that a less expensive specialist seismic testing/core sampling ship might prove to be suitable for the test period, but evaluation of such options and hardening-up of testing costs is outside the scope of this preliminary Report.
Development Phase
The overall field development for both the 10PJ and 150PJ case is shown in the schematics attached as Appendix 6.
It is envisaged that a single offshore gathering station will be required to collect and clean-up gas from a series of clusters of subsea wells.
For the 10PJ case, a single cluster of 6 wells is envisaged, while for the 150PJ case, and additional 4 clusters would be needed.
Located on the processing facility would be gas lift and export compressors.
Different compressor sizes are required to process the gas produced under each scenario, but it has been assumed that all machines for both scenarios would be need to be installed at the outset.
This is because of the cost of offshore construction in New Zealand is governed by the mob/ demob costs of work barges. Unless packages can be broken down into components small enough to be handled by the installed platform crane, a large work barge would have to be mobilised.
Quite apart from the difficulty of getting a barge into such a remote location, the cost of mob/ demob alone can easily exceed US25 million before any work is down.
With such economics, pre-investment in process plant can be justified, and determining the best option is a matter for further study.
Also required are a 20” pipeline to shore, a landfall receiving station and cross-country pipelines to connect to the NZ gas grid.
For the 10 PJ case, a 8” line could connect to the existing 8” grid serving Hawkes Bay
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For the 150PJ case, a 24“ line would need to be run to Wellington, and in addition, upgrading of the line north to Hawera would be required.
A schematic of the gas grid is appended, and it will be noted that the 8” line from Taranaki to Wellington is partly duplicated with 12” loops. Time did not allow us to define exactly what would be needed to upgrade the lower NI grid. It has been assumed that another 100km of 12” would be needed, but this assumption requires checking.
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3. BASIC PROCESS DESCRIPTION
Process sketches for both offshore facilities and at the landfall receiving station are given in Appendix 7.
The basic process is to reduce the pressure in each well by removing gas and liquid, thus causing more hydrate to dissociate into gas and free water. This process will be enhanced by addition of chemicals. For conventional offshore hydrate control, glycol and methanol are used along with other speciality chemicals. Without studying what mix of chemicals is appropriate, it has been assumed that some mix of chemicals will be needed, and typical handing facilities have been allowed for.
For every 1m3 of hydrate that dissociates, it releases160-180m3 of gas and 0.9m3 of water.
To remove the produced water, a gas slip stream is recycled as “gas-lift”.
Process equipment located on the TLP are a water/ gas separator, water treatment plant, chemical storage and injection facilities, together with gas-lift and export compressors.
While water treatment and clean up is required before produced water can be discharged overboard, it has been assumed that rather than clean-up chemicals offshore, spent chemicals are better sent to the onshore receiving station for processing.
A “piggy back” line to re-supply the offshore facility is envisaged - similar that that employed at Pohokura – offshore Taranaki.
Offshore utilities required are power generation, service air, fuel gas clean-up and supply, fire-pumps, together with facilities associated with a minimum manned platform.
Given the relative simplicity of the process, it expected that the offshore operation would be unmanned and controlled from shore.
Some permanent offshore accommodation will be required for over-nighting and maintenance visits.
Topsides costs include for all the above, along with cranes, a boat-landing, helli-deck and life boats.
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4. BASIC SUBSEA WELL AND PIPING LAYOUT
The proposed layout of the subsea wells for both the 10PJ and 150 PJ cases is based on that suggested in the Hancock report and shown in Appendix 6.
For 10PJ it is assumed that a single cluster of 6 wells will suffice.
For 150PJ an additional four clusters of 6 wells would be required.
Each cluster of wells would be deviated from a single subsea wellhead/ PLEM – pipe line end manifold.
Each well would be connected to both gas lift lines and production gas lines.
Chemical injection has been assumed to be into the gas lift manifold on the TLP, but an alternative to this would be to run chemicals directly into the wells via the umbilical cable used to control the valves on the subsea wellhead. Umbilical cables can be designed to accommodate power and control cables as well as hydraulic tubing and multiple chemical injection lines.
Detailed consideration of such matters is beyond the scope of the preliminary study.
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5. CHOICE OF PRODUCTION “PLATFORM”
With water 1000m deep, conventional offshore jacket supported structures – like Maui for example - are out of the question.
There are three potential proven solutions that could be employed – a tension leg platform (TLP), a floating production unit (FPU) - which is basically a moored, converted tanker – or a SPAR.
The last two employ similar types of “spider catenary” moorings, and while they are less stable than a TLP, they have the advantage of being more easily relocated at a later date.
A TLP is a floating square or circular hull attached to the sea floor by vertical tendons. Being jacked down below its natural level of buoyancy, it exerts an upward force on the tendons, which thus constrain sideways motion. A TLP is like a reed waving in a pond.
As there isn’t a great difference in cost between all three, a decision was made to only cost out a TLP.
The diagrams attached in the appendices contain a lot of technical/ project data on worldwide applications of SPARS and TLPs.
One matter where gas hydrates differ from conventional gas well is in the area of subsidence and the effect this might have on ground stability. To avoid problems with pile anchoring, it has been assumed that the TLP (or any other type of processing platform) would need to be located a safe distance away from the nearest well.
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6. DEVELOPMENT SCHEDULE
The main components of the development programme are:
• conceptual and FEED design,
• rig mobilisation, and drilling of the clusters of subsea wells,
• fabrication, transportation and installation of the central offshore processing facility.
• Hook up and offshore commissioning
• Construction and commissioning of land fall receiving facilities
• Consenting and construction of cross country pipelines
Given the similarity of the technology with other conventional offshore projects utilising TLPs, FPUs or SPARs, the timescales given in Appendix 5 provide a good indication of expected project timing.
For the processing equipment envisaged for, a small to mid-sized TLP or SPAR would be needed.
Hancock proposed using a FPU (floating production unit) which is also practical and feasible.
Considerably more study is required to make a selection between these alternates.
Appendix 5 tabulates hard data for SPARS and TLPs from around the world.
For a small to medium TLPs- such as is envisaged for this project- a 30 month study time is a typical time before a final investment decision can be made.
Total project time from discovery till first gas is about 70 months.
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Appendix 1 Capex
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Appendix 2 Overview Diagram of Worldwide Deepwater Drilling Capability
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Appendix 3 Subsea Tie Back Distances
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Appendix 4 Time Progression of Spars, TLPs and Compliant Towers in Deep Water
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Appendix 5 SPAR & TLP Cycle Time Aanalysis (Discovery to First Gas)
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Appendix 6 Development Schematics
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Appendix 7 Process Schematics
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Appendix 8 Vector Gas Grid
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Appendix 9 Cross Country Pipelines
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Approximate Pipeline Length: 90km
Pipeline Tie at Lower Hut Inlet Pressure (Bar) Outlet Pressure at Lower Hut (Bar) Compressor kW (HP) 10PJ - 25MMscfd 8" 80 51 760 (~1000) 150PJ - 382MMscfd 24" 80 52 11720 (~15700)
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Appendix 10 Deepwater Rig Rates and Areas of Operation
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y:\zother\501102\projeng\reports\rpt-x0001-r0 - hydrates rpt.doc March 2009 APPENDIX 7: Gas Hydrates Economic Analysis
Economic Analysis surrounding hydrate exploitation. The use of the simplified scenarios does not alter The purpose of this economic analysis is to the conclusions which can be drawn from demonstrate that gas hydrate technology has the analysis. the potential to become a viable alternative/ • Where possible, the assumption used replacement for indigenous and imported fuels/ in MED’s New Zealand Energy Strategy gas. Specific objectives of the analysis are to: are incorporated into the analysis. • Demonstrate that gas hydrates are The most significant of these are the economically competitive with alternative US$/NZ$ exchange rate of 0.54, an oil future sources of gas price of US$60/bbl and a 5% discount rate. Variants of these are tested in the • Demonstrate the economic benefits of sensitivity analysis. In addition, the LNG government policy designed to accelerate price formulae developed by Gary Eng and the development of New Zealand’s hydrate published on the MED website are used resource. as the basis for the international price of • Determine whether the export of methane methane. is likely to add value to a hydrate • The national economic analysis excludes development project all internal transfers such as taxation and payments between the commercial entities 1. Methodology involved in the projects. Economic costs A national economic cost-benefit analysis and benefits throughout the project life following the methodology outlined in are in real 2008 New Zealand dollars and Treasury’s Cost Benefit Primer is used as the currency exchange rates are assumed to basis for assessing the benefits or other wise remain constant. of developing the hydrate resource. • Gas hydrate technology is in its infancy with no commercial developments made. • Several development scenarios have been Development cost estimates have been used to address the key objectives of this prepared by Transfield Worley Services analysis. To illustrate key assumptions based on the subsea gas well technology and uncertainties, simplified scenarios described by Steven Hancock at the New using fixed methane values and scales of Zealand Petroleum conference 2008. development have been assumed. These Transfield Worley’s cost estimates are are then combined into a composite very close to those of Hancock for scenario which illustrates a staged developments in the capacity range of 150 development pattern which is most to 300 PJ. These estimates probably reflect likely given the technical uncertainties the most advanced gas hydrate research $/GJ
Figure 1: 300 PJ Hydrate Development
Appendicies Page 157 and Hancock’s also provide a useful 2 Development Scenarios comparison with natural gas development costs. However, because of there is no Four scenarios have been chosen to commercial precedent upon which to base demonstrate the anticipated economics of these hydrate development costs, they small and large scale production of gas are subjected to large variations in the hydrates and also any benefits of exporting sensitivity analysis. methane:
• Unit costs of production are calculated 1. 10 PJ methane/year: feedstock for for both natural gas and gas hydrates. To thermal power (about 200 MW) and/or be consistent with the economic analysis, petrochemicals, requires dissociation of these have been calculated at a 5% 1.5 million tonnes of hydrate. This size of discount rate and are therefore significantly development is chosen to illustrate the lower than commercial estimates using the economics of small scale development, same costs of development and operation where it is likely that hydrates will be where a discount rate or cost of capital competing against indigenous natural gas in the order of 15% would more likely be which is likely to continue to be available applied. Figure 1 illustrates the difference in these quantities from new resources in calculated unit cost of production using for some time to come. It is also used in the same costs but at discount rates of 5% the composite scenario as the basis for and 15%. The unit cost of production is in costing the “proving” phase of the staged effect the unit price the project would have development. to receive for the methane to achieve an internal rate of return of 5% or 15% on a 2. 150 PJ methane/year: equivalent to the real dollar, before tax basis. whole New Zealand gas market excluding existing methanol capacity, requires Although the project economic analysis dissociation of 22.5 million tonnes of is the focus of this study, it is useful hydrate. In the longer term there is strong also to discuss the commercial context, possibility that there will be insufficient in particular gas prices and costs of indigenous natural gas to supply the production based on commercial discount whole domestic gas market at current rates. As noted, a 15% discount rate is rates of consumption with the most likely used to replicate commercial costs of replacement fuel being imported LNG. This capital. It is acknowledged that this figure scenario is designed to compare production has been arbitrarily selected but industry of hydrates with the importation of LNG. views on appropriate costs of capital can vary widely depending on, inter alia, 3. 300 PJ methane/year: equivalent to a total perceived project risk, debt/equity ratios, of about 5.4 million tonnes per year of company risk adversity and the economic methane split between export as LNG and and market environment at the time of the the supply of the New Zealand gas market, analysis and can change from time to time. requiring dissociation of 45 million tonnes of hydrate. This scenario illustrates the • It has been assumed that the availability economics of exporting methane extracted of gas hydrates will not change the from the hydrate. consumption of gas in New Zealand. There is a possibility that gas consumption 4. A composite scenario representing a “most will increase with the development of a likely” development in which a “proving” gas hydrate industry particularly if the project of 10 PJ capacity is developed in alternative is imported LNG. However, anticipation of a major 300 PJ facility to this analysis has not investigated the supply the export and domestic markets. price effect on gas consumption and it is This scenario incorporates features of assumed that any national benefit arising scenarios 1 and 3 with a lead time of from higher consumption of gas will be eight years between the commencement relatively small compared to the benefit of production from the two phases of the arising from reduced gas costs. This project assumed. assumption will tend to underestimate net In the business as usual case for each scenario benefits somewhat. it is assumed no effort is made to promote the development of New Zealand’s hydrate resource in preference to resources in other
Page 158 Hydrates Options Analysis countries. Under this circumstance it is most the relevant value of methane is the CIF probable that New Zealand, because of its price of LNG plus the cost of regasification small gas market and relative isolation, would in New Zealand. This value is maintained receive low priority from potential investors constant throughout this scenario. and energy companies and would lag behind • 300 PJ pa scenario: follows the same the development of hydrates in other larger assumptions as the 150 PJ except that economies, effectively becoming one of “the the additional methane produced will be last cabs off the rank” with first production exported as LNG. The exported methane not occurring before 2040. Whilst delaying will compete with LNG in the international production of hydrates potentially has the market and the ex hydrate plant price for advantage of allowing the technology to exported hydrate is the LNG FOB price less the liquefaction costs in New Zealand. mature before being used in New Zealand, LNG FOB prices are directly linked to LNG there are potential economic benefits in CIF prices by the differential of the ocean accelerating the introduction of the technology, freight to the export market, which is most particularly when alternative fuels are likely to be in East Asia. The determination significantly more expensive. The impact of of the CIF and FOB prices is shown in Table bringing forward the first production date of 1. These are kept constant throughout this hydrates is examined for each scenario. scenario. • Composite scenario: the same assumptions 3 Benefits and Costs used to value methane in the other three A number of key assumptions have been made scenarios are used in the composite whilst evaluating the various scenarios: scenario. However, unlike the other scenarios, the value of methane consumed 3.1 Value of Methane in the domestic market is not kept constant and is increased over time from that used The primary economic benefit from producing in the 10 PJ scenario for the replacement methane from hydrates will be the cost of of indigenous gas to that used for the supplying the next best alternative fuel. These replacement of imported LNG in the other costs are described for each of the scenarios scenarios. Methane values are assumed examined: to ramp up from cost of indigenous gas production in 2015 and reach parity with • 10 PJ pa scenario: assumes that there imported LNG prices in 2020. The value of is plentiful indigenous natural gas to exported methane remains constant as in supply this relatively small quantity to the the 300 PJ scenario as it is dependent on domestic market. By displacing natural the price of LNG. gas produced from New Zealand fields, the principal economic benefit from the use of The 150 PJ scenario represents existing New hydrate is the avoided cost of producing Zealand natural gas consumption with some the natural gas displaced. In effect, this allowance for growth but excludes gas used directly compares the costs of producing for methanol production which is unlikely to hydrate and natural gas, with the cheaper be profitable in New Zealand in the longer being economically more favourable. A cost term unless methanol prices such as those of production for natural gas is assumed to experienced in 2008 are sustained. The be $ 2.50/GJ throughout this scenario (refer remaining gas consumption is split more or Figure 2 below). less evenly between electricity generation and • 150 PJ pa scenario: from about 2018 the combined residential, commercial and there is insufficient indigenous natural industrial (including cogeneration) markets. In gas to supply this quantity of gas long practice it is probable that gas consumption term unless there is a new discovery or will reduce as its price increases when discoveries adding reserves of a similar imported as LNG or produced from gas hydrate scale to the Maui field. Without such due to its price elasticity and substitution discoveries, the value of the hydrate will by cheaper energy forms in the domestic approach the cost of the fuel which would market. The size of this reduction is a complex otherwise replace indigenous gas. This fuel is most likely to be imported LNG and determination and beyond the scope of this study and will depend on the future prices
Appendicies Page 159 of competing energy forms and the technical future LNG prices with a weaker link to oil substitutability of gas in each of the four prices. The so-called Guangdong formula energy market sectors noted above. Using LNG used in the 2006 report produced LNG imports as the shadow price will therefore prices about 60% of that derived from overstate somewhat the value of gas hydrates historic relationships at US$ 60/barrel. However, this trend to lower prices proved in the domestic market as some gas probably to be short-lived with LNG prices moving can be replaced by cheaper indigenous energy back to historical trends as the market forms. reverted more to suppliers’ favour.
This same volume and price uncertainty does Whilst the 2008, or “current”, formula more not exist for the export of gas hydrate as accurately reflects recent and historic trends in the international LNG market will be large LNG prices and is a logical basis for predicting compared to New Zealand export quantities future prices, it is probably near the potential and the prices relatively inelastic within each upper level of the LNG price range in terms of scenario, strengthening the value of adding thermal equivalence to crude oil. Historically export capacity to a New Zealand hydrate the Japanese LNG prices have been high project, both as a potentially viable investment compared to gas in other markets because of, and providing an anchor load to support the inter alia, the cost of the LNG supply chain, development of the fragmented domestic the particular behaviour of the Japanese buyers market. in favouring indexation to crude oil, and the non-existence of competing gas supplies. 3.2 LNG Prices Gas-on-gas competition is a major factor in LNG Imports: CIF Price the US market and to a lesser extent in Europe in setting prices, including imported LNG, The CIF price of LNG in New Zealand is resulting in gas prices which usually are lower determined using the formulae contained in and often more volatile than Japanese prices. the reports by Gary Eng posted on the MED website. In both reports the New Zealand The advent of significant quantities of gas price is based on the CIF price in Japan on the produced from hydrates raises the potential premise that delivery distances from the point for downward pressure on LNG prices, of origin to Japan and New Zealand are similar. necessitating a lower price boundary for this Both link the price of LNG linearly with that analysis. Based on the cost assumptions of crude oil but contain different coefficients, used in the analysis below, LNG priced using reflecting the respective market conditions at the “current” formula and an oil price of US$ the time the reports were prepared: 60/barrel results in very high rates of return to investors in hydrates, suggesting there • The 2008 formula reflects the Japanese will be potential to reduce gas prices. Whilst LNG price over the last two or three years where prices were strongly linked to crude the Guangdong` formula is based on a one- oil prices as a result of strong demand over off event, it provides a tangible example of supply. It is also similar to the longer term regional LNG pricing under downward pricing linear correlation between LNG and crude pressure from other sources of gas. In the oil prices, producing an LNG price about current pricing environment, it is an outlook 13% higher that that determined by the of relatively low probability and therefore latter with oil set at US$ 60/barrel. represents a suitably conservative lower bound • The 2006 formula was set when there for LNG prices. was effectively a buyers’ market, with Both the current and Guangdong formulae an overhang of potential sources of LNG supply. At that time the Guangdong LNG include the cost of regasifying the LNG in contract had been signed with prices New Zealand and have as their principal significantly lower than traditional Japanese independent variables the US$/NZ$ exchange prices and was thought to foreshadow rate and international oil price. These are set at 0.54 and US$60/barrel respectively, both 1/ A Formula for LNG Pricing, Gary Eng, A report prepared for the Ministry of Economic Development, May 2006; 2/ A these variables being tested in the sensitivity Formula for LNG Pricing – An Update, Gary Eng, November analysis. 2008
Page 160 Hydrates Options Analysis Table 1: Methane Values Determined from LNG Prices
LNG Exports: FOB Price costs for 195 PJ per annum hydrate and Methane produced from hydrates and exported natural gas developments, providing an to international markets will be shipped out of insight into the relativity between hydrate and New Zealand as LNG. The value of this methane natural gas costs of production. These are to the hydrate project is the FOB price of the complemented by the estimates of Transfield LNG less the cost of liquefying the methane. As Worley specifically for the 10 PJ and 150 PJ New Zealand LNG is likely to be shipped to the hydrate scenarios whilst the 300 PJ scenario large East Asian markets, the FOB price in New can be considered a near-duplicate of the Zealand will be the East Asian CIF price less 150 PJ scenario. As noted, the estimates of the freight from New Zealand to East Asia. It is Hancock and Worley Transfield are very similar also assumed that the CIF price of LNG in New after making due allowance for the differences Zealand will be similar to that in East Asia as in project scale. Consequently only one cost the transport distances from likely producers estimate is used for each of the the 150 PJ and will be of a similar magnitude, making the New 300 PJ scenarios. Zealand FOB price equal to the CIF price less Two cases have been taken for the 10PJ “proof the ocean transport to East Asia. This transport of concept” scenario: cost has been set at US$ 0.8/GJ, the same as the cost of liquefaction. • Scenario 10 PJ/C: Transfield Worley’s estimate which includes a single cluster 3.3 Costs of Production of 6 wells compared to the 150PJ scenario where an additional 4 clusters would be Principal economic costs are the expenditure needed. Otherwise the 10 PJ scenario on the development of technology, appraisal is considered to be a precursor to the of the hydrate resource and all capital and 150 PJ scenario with a single offshore operating costs throughout the life of the gathering station and onshore facilities hydrate plant. For the purposes of this sized accordingly. This case represents a analysis, it is assumed that the project is likely scenario for a staged commercial carbon neutral as the methane from the 150/300 PJ development with provision to hydrate replaces natural gas or LNG which initially prove the technology in a 10 PJ have similar carbon and energy contents. It is development. Capital expenditure would be disproportionately weighted in the front- certain that there will be emissions during the end 10 PJ phase. production of the hydrate but no authoritative estimate is available. However, there will be • Scenario 10 PJ/S: A lower cost 10 PJ emissions from the production of LNG and scenario in which the project is not natural gas which will to some extent offset designed to be integrated into a future, those from hydrates. larger development. The overall capital costs will be significantly lower as Hancock has estimated capital and operating processing and compression plant can be
Appendicies Page 161 sized for the smaller output. This represents • As the 10PJ/S scenario is designed to be a stand-alone “scientific” proof of concept a “scientific” project, it will not be scaled project, designed without cognizance of for integration into the subsequent design integration into future capacity expansion. of the expanded 300 PJ development. Consequently the total capital cost of Table 2 summarises the cost data developed the 10 PJ/S composite scenario will be by Hancock and the costs derived from it $370 million during the first phase plus for each of the scenarios. Five consecutive $8,391million in the second phase. categories of cost have been included in the Conversely, the 10 PJ/C development is analysis: designed to be integrated into the final development so the total capital cost • Assessment: Includes the development of will be $8,391 million, comprising $1,300 the hydrate extraction technology and the million in the first phase and $7,091million characterization of the hydrate resource. in the second. This expenditure is made over a ten year period prior to the commencement of • The construction time for the 300 PJ plant engineering design. is reduced to three from four years when preceded by the 10 PJ/C development • FEED: Set at 3% to 5% of capital costs, because of the high level of integration which is typical of large capital projects and with the initial phase. A four year takes place over a three year period for the construction period for the 300 PJ facility is 150 and 300 PJ scenarios, two years for the assumed with the 10 PJ/S initial phase. 10 PJ/C scenario and one year for the 10 PJ/S scenario. • Hydrate production in the 10 PJ/C case will continue throughout the eight year period • Capital: Provided by Transfield Worley and prior to the start-up of the 300 PJ plant Hancock. Construction times of four years as the initial phase has been designed for the 150 and 300 PJ scenarios, three for subsequent commercial development. years for the 10 PJ/C and two years for the However, hydrate production in the 10PJ/S 10 PJ/S scenario are assumed. “scientific” case is assumed to cease after • Operating: Set at 4% to 7% which is two years, although subsequent production consistent with Hancock’s lump sum from the 300 PJ plant will also commence operating costs over a 25 year operating eight years after first production from the period. 10 PJ plant. • Abandonment: Set at 5% of capital costs in Unit costs of methane and gas production the year immediately after the last year of under these assumptions are shown in Figure 2 operation. for both hydrate-derived methane and natural Each of the 10PJ/C and 10 PJ/S scenarios have gas. As discussed in Section 1, the costs been included as the forerunner to the 300 PJ determined at a 5% discount rate represent development in the composite scenario. Costs the economic costs of production used in this and hydrate production profiles are treated analysis whereas those at 15% are indicative of somewhat differently in each case: commercial prices.
Table 2: Costs of Exploiting Hydrate Resource
Page 162 Hydrates Options Analysis 4 Competitiveness of Hydrates with situation where there is plentiful indigenous Alternative Sources of Gas gas to meet the same demand requirement to be supplied by hydrate and will equally apply Economic internal rate of return is used to to the larger scenarios if large new, low cost measure the net benefit of avoiding the cost gas reserves were to be discovered. In these of natural gas supply by investment in hydrate circumstances, an acceptable rate of return technology development and subsequent hydrate might be attained if part of the hydrate output was directed to exports because of relatively plant capital and operations. This is summarized high LNG-related price received, as illustrated in Table 3 for the 10, 150 and 300 PJ per annum in the sensitivities section of Table 3 where scenarios gas value is set at domestic levels.
Based on the base case assumptions used in this Table 3 also shows the sensitivity of economic analysis, some key conclusions can be drawn: rate of return to changes in some of the base case assumptions used in the analysis. Even • Hydrate production results in significant net economic benefits relative to imported gas. when taking large variations in the principal Gas is valued against LNG in both the 150 inputs of project costs, oil price and exchange and 300 PJ scenarios, resulting in economic rate, the internal rate of return remains above internal rates of return of 30.1% and 26.9% 5% for the scenarios predicated on LNG respectively when using the current formula prices, indicating there is significant margin for LNG prices. The driver behind these high in the project to absorb adverse shifts in the returns is the high value of LNG imports and conditions underlying development: exports ($19.08/GJ and $13.80/GJ respectively) relative to the cost of producing methane • At an oil price of US$20 per barrel and from hydrate ($4.09/GJ $3.47/GJ). correspondingly low LNG prices, the internal rate of return remains at or in • The economic benefits remain substantial excess of 10% for both the 150 and 300 PJ when the LNG is priced according to scenarios under both LNG pricing formulae. the Guandong formula with IRR’s of Given recent history, it is improbable that a 21.5% and 17.4% for the two scenarios, long term oil price below this level would indicating hydrate production can withstand be sustained, suggesting that a hydrate significant downward pressure on regional project replacing LNG imports will provide LNG prices under base case assumptions. economic benefits under most oil and • Hydrates are unlikely to be competitive with LNG pricing outlooks, provided the base domestic natural gas. Both 10 PJ scenarios case assumptions for project costs remain have negative internal rates of return as sound. the cost of production of hydrate will most • Similarly, internal rate of return will remain probably be significantly more than that of above 10% if the exchange rate were natural gas. This scenario corresponds to the to be increased to 0.85, slightly above NZ$/GJ
Figure 2: Unit Costs of Methane and Gas Production at Different Discount Rates
Appendicies Page 163 Scenario Size (PJ) 300 150 10 C 10 S Export Component (PJ) 150 0 0 Gas Value Basis LNG LNG Domestic Cost of Production ($/GJ) 3.47 4.09 18.54 4.76 LNG Price Formula Guandong Current Guandong Guandong Guandong Guandong Internal Rates of Return (IRR) Base Case Assumptions 17.4% 26.9% 21.5% 30.1% Negative Negative Sensitivities Development Costs + 100% 8.0% 16.5% 10.2% 18.5% Negative Negative Domestic Gas Cost: $5/GJ 17.4% 26.9% 21.5% 30.1% Negative Negative Oil Price: USD$20/bbl 10.0% 12.7% 15.1% 17.3% Negative Negative Exchange Rate US$/NZ$: 11.1% 20.0% 14.0% 22.5% Negative Negative 0.85 Gas Value: Domestic 7.8% 16.3% Negative Negative Negative Negative
Table 3: Replacement of Gas by Hydrates: Internal Rates of Return
the highest rate experienced in the last • In the 10 PJ scenarios, the 5% economic 20 years, which effectively reduces the threshold is met only with domestic gas benefit obtained from replacing US dollar prices at $18.5/GJ and $4.8/GJ for the 10 denominated LNG. A combination of this PJ/C and 10 PJ/S scenarios. These would high exchange rate and US$20/barrel oil have to be nearly doubled to result in a would reduce IRR’s to 6.7% and 10.1% for commercial level IRR of 15%, indicating the 300 and 150 PJ scenarios respectively, or it is highly unlikely that hydrates would 4.2% and 7.9% using the Guandong formula. compete with domestic gas resources. Only However, this combination is counter- the 10 PJ/S scenario would be competitive intuitive as a weak US dollar is generally with imported LNG under the BAU criteria, associated with higher prices for US dollar even with doubled project costs, but this denominated commodities such as oil. does not represent a long-term commercial case. • Doubling the project costs will reduce economic IRR’s to 16.5% and 18.5% (8.0% and 10.2% using the Guandong formula) for 5 Impact of Hydrates on International the 300 and 150 PJ scenarios, indicating the Gas Prices project is robust relative to the assumptions Whilst oil price is the primary energy price on capital and operating costs. However, variable used in this analysis, it is the LNG whilst they are considered conservatively price derived from it that directly influences the high at this time, the hydrate costs are hydrate project’s economic performance. The based unproven technology and the non- relationship between LNG price and project IRR existence of any commercial development. is independent of the two LNG price formulae At doubled project costs, the 5% economic discussed in Section 3.2 and is shown in Figure IRR threshold is reached when the oil price 3 for the base case and also with project is reduced to US$ 22.6/barrel for the 300 PJ scenario and US$ 17.1/barrel for the costs escalated 100% to reflect the general 150 PJ scenario (US$ 39.9/barrel and US$ uncertainty surrounding project costs. 24.6/barrel using the Guandong formula), Even with double the base case costs, the suggesting the hydrate development will be economically attractive under most cost and hydrate project will meet the government oil price outlooks. It also emphasizes the criterion of 5% IRR at an LNG price of less importance of accelerating investigations than $ 8.0/GJ CIF, with the requisite LNG price into hydrate technology development to ranging from $ 1.6/GJ for the 150 PJ scenario reduce uncertainties regarding project costs. to $ 7.3/GJ for the 300 PJ scenario with costs The impact of oil prices on hydrate project escalated 100%. These LNG prices are below economics is discussed in more detail in those determined by both the current and Section 5. Guandong price formulae which are shown in
Page 164 Hydrates Options Analysis LNG Price $/GJ CIF LNG Price
Figure 3: The linkage between crude oil prices and hydrate project IRR under the two LNG pricing formulae
Figure 3 at $ 16.77/GJ and $ 9.10/GJ at the base approach the price determined by the current case oil price of US$ 60/barrel. formula. It follows, therefore, that there is scope for downward movement of LNG market prices Gas produced from hydrate and sold into the relative to crude oil from current levels should gas market will have to be priced significantly from hydrate production enter the international higher to meet a commercial IRR criterion of gas market. This will be less apparent at lower oil 15% . Figure 3 illustrates that this criterion prices and with escalated hydrate project costs. is generally met at base case project costs when the gas market price is based on the Figure 4 shows the linkage between crude oil Guandong LNG price formula: gas priced to the prices and hydrate project IRR under the two Guandong formula results in a project IRR in LNG pricing formulae, representing high and low excess of 20% and 17.0% for the 150 PJ and 300 relativities between LNG and oil prices. PJ scenarios respectively. Only with the project Some general conclusions can be drawn from costs doubled will the requisite gas market price this analysis which attest to the economic
Assuming that domestic prices of gas rise to meet that of potential of gas hydrates: LNG. This may be an optimistic assumption if indigenous hydrate gas is produced rather than LNG imported as is • When LNG price is the basis for gas hydrate the case at present where domestic gas prices are lower than potential LNG imports. value, the government criterion of 5% IRR Oil Price US$/barrel Price Oil
Figure 4 above illustrates the linkage between oil price and project internal rates of return
Appendicies Page 165 is met in all base case project scenarios, could be brought onstream under ideal including the doubling of project costs and circumstances. In all cases, the same both high and low LNG price relativities implementation schedule is assumed to with oil. This applies to oil prices as low hold, ie the lead times for assessment, as US$ 40/barrel, significantly below the FEED, construction, operations and official outlook of US$ 60/barrel. abandonment will remain constant with each being brought forward either ten or • A commercial criterion of 15% IRR will twenty years. The only exception is the be met at an oil price of US$ 60/barrel assessment costs in the 2020 start up case in all scenarios with the exception of a where these must be spent over a five combination of low LNG prices relative to year rather than ten year period to meet oil (when applying the Guandong formula) the implementation schedule. This has a and escalated project costs, providing virtually negligible impact on the analysis. potential for hydrate producers to undercut LNG priced at current relativities with crude For each of the three scenarios the economic oil. This becomes more pronounced at oil internal rate of return and cost of hydrate prices above US$ 60/barrel and vice versa. production are the same for the business as usual, 2030 start up and 2020 start up cases 6 Benefits of Accelerating Hydrate as the relative investment and production Development profiles are unchanged despite the different Under business as usual development start up dates. The output principally affected conditions, the New Zealand government by the different start up dates will be the provides no assistance or incentive to develop project economic net present value due to indigenous hydrate resources, with first the effect of the time value of money. This is production assumed to occur in 2040 because illustrated in Figures 5 a and b which show of low priority given to New Zealand by the relative discounted costs of supplying gas investors and energy companies. This section either as LNG or hydrate to the New Zealand evaluates the impact of bringing forward market over the period 2009 to 2075 for the the date of first hydrate production through 300 PJ scenario: government assistance such as expenditure during the evaluation of the hydrate resource • In each figure the blue line shows the discounted annual cost for the business and technology or some type of tax incentives. as usual case of supplying gas over this The following simplifying assumptions have period either as imported LNG or hydrate. been used: • Whilst the domestic market is being • Any expenditure made by government supplied with LNG, the annual costs will be replaces expenditure by the private sector. a combination of imported LNG costs plus As this is an economic analysis, such the costs of hydrate assessment, FEED, internal transfers are not included and capital and abandonment as the hydrate so the expenditure profile is assumed to project is being developed or abandoned. remain the same. Similarly, tax incentives are internal transfers and will not affect the • Whilst hydrate is being produced the project cash flow. annual cost will be the hydrate operating cost, offset in this scenario by the income • The analysis has been undertaken only from the export of LNG, hence a “negative” for the 10, 150 and 300 PJ scenarios, cost during this period. each subject to constant gas values, to illustrate the impact of bringing • Similarly the red line shows the discounted project implementation forward. The annual costs when the hydrate project is same conclusions drawn from these brought forward ten or twenty years. These three scenarios will be applicable to the figures will be larger than the business as composite scenario discussed below. usual case due to the effect of discounting. • Two cases are analysed for each scenario: • The broken black line is the difference in bringing first production forward ten discounted annual cost (negative being years to 2030 and bringing it forward more costly) between the business as usual twenty years to 2020, the latter being case and the brought forward cases. The the very earliest hydrate technology sum of these annual costs (or the area
Page 166 Hydrates Options Analysis NZ$ million
Figure 5a: Economic impact of accelerating project by 10 years
under the broken line) is the reduction in • Under base case assumptions, the net total present cost of gas supply by bringing present cost of gas supply by hydrate could the project forward. In the 300 PJ case this be up to about 25% lower over a 65+ year reduction is $21,012 million for the 2020 period if the start of hydrate production is start up case and $7,983 million for 2030 brought forward from 2040 to 2020. This start up over the 67 year period and is saving could be increased towards half equivalent to the increase in net present with LNG exports included in the hydrate value of the hydrate project compared to development. gas supply. • This benefit falls significantly as the Following this same methodology, the long hydrate project is delayed back toward the term reduction in net present costs of gas BAU timeline, the saving in net present supply by bringing forward the start date of cost reducing nearly two thirds if hydrate hydrate production is summarized for the three production is delayed back from 2020 to 2030. scenarios in Table 5. • A possible additional benefit of early This analysis indicates there is significant implementation is an early period of higher potential to reduce the longer term cost of gas prices should a subsequent widespread supplying gas to the New Zealand market uptake of hydrate production place and improve hydrate project economics if downward pressure on international LNG Government implements policy directed at prices. accelerating the development of hydrate • This same benefit will not apply when resources. displacing low cost indigenous natural NZ$ million
Figure 5b: Economic impact of accelerating project by 20 years
Appendicies Page 167 ERRATA
Pg 59; Table 5.7: Costs of Exploiting the Hydrate Resource
NZ$ Million Scenario (PJ) 10S 10C 150 300 Hydrate Assessment 22 22 66 168 FEED 14 44 132 420 Capex 370 1300 4043 8391 Opex per annum 17 81 280 332 Abandonment 19 65 202 420
Gas** Assessment 50 50 FEED 107 214 Capex 2142 4284 Opex per annum 102 205 Abandonment 107 214 * Development of hydrate technology and characterization of resource ** Gas costs based on Hancock data
Pg 168; Table 5: Reduction in Present Cost of Gas Supply
Gas Supply from 2009 to 2075 Scenario Size (PJ) 300 150 10C 10S Exports (PJ) 150 0 0 0 Gas Value LNG LNG Domestic LNG Price Formula Guandon Current Guandong Current g Hydrate Project Life (years) 25 25 25 25 25 25 BAU Total Present Cost $M* -29388 -45129 -30994 -50489 -1028 -579
Hydrate Production Start Reduction in Total Present Cost $M Date 2040 0 0 0 0 0 0 2030 3263 7983 2252 4612 -329 -46 2020 8604 21012 5931 12135 -863 -121 * Discount rate of 5%
Table 5: Reduction in Present Cost of Gas Supply
gas as illustrated in the 10 PJ scenario. This analysis suggests that there is potential As shown in Section 4, the business as economic merit in exporting methane from usual IRR, and hence net present value, hydrates, even with the base case project costs for this scenario is negative. Under these doubled, although this is less than using the circumstances bringing forward the start gas hydrate in the domestic market. Should of hydrate production will increase the net LNG prices be depressed relative to oil prices, present cost of gas rather than reduce it. as prescribed by the Guandong formula, then 7 Addition of Export Capacity to the economic benefits are less obvious if Hydrate Development project costs increase. However, this simple analysis does not recognize some potential The internal rate of return from the benefits of adding export capacity to a hydrate development of 300 PJ hydrate scenario in development: which both the domestic and export gas markets are supplied is less that that for the • By expanding the production capacity to 150 PJ scenario where only the domestic gas accommodate exports, there is potential market is supplied (see Table 3). This is due to reduce unit costs of production through to the lower economic value of methane sent economies of scale for capital and resource and technology assessment costs. This to the liquefaction plant for export compared potential has been explicitly excluded from to that of imported LNG used to supply the the analysis for lack of relevant cost data. domestic market. • An export LNG market underpinned by a Based on the differential between the net cash long term sales and purchase contract could flows of the two scenarios, the internal rate provide a substantial anchor load to help of return for the marginal hydrate production secure financing for the hydrate project. It capacity used for methane exports is 23.8% is probable that the introduction of hydrate under base case assumptions and current supplies into the domestic gas market will price relativities between oil and LNG or 13.2% be more fragmented and protracted because of the existence of natural gas or future LNG when the Guandong formula for LNG prices is supply contracts. This is illustrated in Figure used. Oil price, as the principal determinant of 6 for the current gas supply outlook based LNG price, is a key sensitivity: a 5% marginal on known indigenous gas reserves. economic internal rate of return is achieved for the plant export capacity at an oil price of US$ • There are no technical problems foreseen 16.9/barrel and US$ 28.1/barrel if the costs of in the liquefaction of methane derived from hydrates. LNG liquefaction and hydrate development were to be doubled (US$ transportation technology is well established 24.0/barrel and US$ 55.2/barrel respectively and widely used on a commercial basis. when using the Guandong formula).
Page 168 Hydrates Options Analysis PJ
Figure 6: NZ Gas Supply Outlook to 2025 • If hydrates have to compete against LNG prices and project costs effectively will be plentiful supplies of indigenous natural the same, although not necessarily all born by gas (a 10 PJ type scenario), exports the project developer. A before tax internal have the potential to improve economic benefits from the project as the value rate of return of 13% may not be sufficient for of methane exported is higher than the developers. value of replacing indigenous natural gas production. This is illustrated in the 8. Composite Scenario sensitivity section of Table 3 where hydrate supplied to the New Zealand market The composite scenario has been included to is valued at the cost of domestic gas illustrate a situation where investment is made production. in a 10 PJ “proof of concept” development in advance of the main project to develop In a commercial context the prospect for technology experience and to gain acceptance exporting hydrate as LNG is not as favourable for the product in the New Zealand gas market. as indicated by the economic analysis. The Key features of this analysis are: inputs to a commercial financial analysis of the marginal hydrate exported will be similar • Both the 10 PJ/C and 10 PJ/S scenarios to those used in the economic analysis as the are considered to illustrate the cash methane has been valued against international flow implications of each. This level of Costs/DCF NZ$ million Methane Value $/GJ Value Methane
Figure 7: Discounted Cashflows for the Composite (staged) Hydrate Development: 10 PJ/C and 300 PJ, 5% discount rate.
Appendicies Page 169 Project Internal Rate of Return Internal Project
Figure 8: Delay to End Date of Domestic Gas Value
production should find a market relatively • The economic benefits of the composite easily, for example at a typically sized CCGT scenario are dominated by the performance power plant. of the second phase of the project whose income and expenditure dwarfs those • Production is expanded to 300 PJ eight of the 10 PJ proving development. This years after first production, providing time is particularly the case when the proving for technology and market development. development costs are those used for the 10 It is sized to meet the whole New Zealand PJ/S scenario which are only 6% of the cost of gas market and to provide an anchor load the total 300 PJ development. As illustrated to the export market. The assessment, in Table 6, the difference in the internal rates FEED and construction schedules for both of return for the composite scenario with the 10 PJ and 300 PJ are assumed to be the the 10 PJ/S initial development and the 300 same as those in the set out in Table 2. PJ scenario is less than 2%. This difference • Exported methane is valued as in the 300 is largely due to the cessation of hydrate PJ scenario. Methane sold into the domestic production after two years during the first 10 market is valued against the replacement of PJ phase of development. indigenous gas until 2015 and then ramped • If the investment schedule follows that of up to parity with imported LNG prices in the 10 PJ/C scenario, the difference in IRR 2020 and held constant thereafter. between the composite and 300 PJ scenarios Cash flow and methane value profiles for the widens. In this case the capital cost of the composite scenario are shown in Figure 7. proving project is 15% of the total and the Pg 170; Table 6: Composite and 300 PJ Scenarios: Internal Rates of Return
Scenario Composite / 10C Composite / 10S 300 PJ LNG Price Formula Guandong Current Guandong Current Guandong Current Cost of Production $/GJ 3.67 3.60 3.47 Internal Rate of Return Base Case Assumptions 15.4% 23.2% 16.3% 25.0% 17.4% 26.9%
Sensitivities Development Costs +100% 7.1% 14.5% 7.4% 15.4% 8.0% 16.5% Domestic Gas Cost $5.00 $/GJ 15.4% 23.2% 16.3% 25.0% 17.4% 26.9% Oil Price 20 US$/bbl 9.0% 11.3% 9.4% 11.9% 10.0% 12.7% Exchange Rate US$/NZ$ 0.85 9.9% 17.4% 10.4% 18.6% 11.1% 20.0% Gas Value: Domestic 6.7% 13.7% 7.1% 15% 7.8% 16.3%
Table 6: Composite and 300 PJ Scenarios: Internal Rates of Return
Page 170 Hydrates Options Analysis disproportionately high capital costs during 9 General Conclusions this initial project phase will reduce project Gas hydrates offer a real opportunity to make a rates of return compared to the 10 PJ/S significant contribution to New Zealand’s longer scenario even though hydrate production term energy requirements with large deposits is maintained throughout the initial project phase. Nevertheless, the internal rates of identified close to the North Island coast return for the 10 PJ/C scenario remain above and within relatively easy access of existing the economic benchmark. natural gas infrastructure. Based on the best information currently available, this analysis • Delay to the onset of valuing hydrate sold indicates that the use of hydrates potentially into the New Zealand market against imported LNG will progressively reduce project IRR. will bring economic benefits to New Zealand This will occur if significant new indigenous and these can be increased by policy directed natural gas reserves are discovered and the at accelerating their development. The key valuation of hydrate against the replacement findings of this analysis are summarized: of indigenous gas persists beyond 2015. The impact of this delay on project IRR is • Gas hydrates can be produced at shown in Figure 8. significantly lower costs than imported LNG, resulting in economic internal • At a commercial discount rate of 15%, a rates of return significantly higher than positive project net present value will not government guidelines for hydrate be attained during the proving phase prior developments replacing potential LNG to investing in the larger, second phase of imports. This provides a significant the project, indicating that investors may opportunity for hydrates if insufficient not recover their capital for a sustained reserves of indigenous natural gas are period with a staged development of this found to meet market requirements. type. This applies for both the 10 PJ/C and However, it is improbable that hydrates 10 PJ/S scenarios. Similarly, when using a would be competitive with natural gas if 5% discount rate, net economic benefits will sufficient indigenous reserves of gas were not accrue during the initial project phase, in to be discovered because of the greater the case of the 10 PJ/S scenario due to the complexity and cost of hydrate production. cessation of hydrate production after two • Whilst the use of imported LNG as a years (see Figure 7). shadow economic price might overstate • The staged development will reduce the value of gas hydrates in the domestic technology risk by limiting capital expenditure energy market, this analysis demonstrates to the small scale project whilst the hydrate that gas hydrates present a better technology is being developed. alternative to LNG should be latter be a • Similarly, the staged development will reduce commercially viable backstop for dwindling market risk. Output from the 10 PJ proving indigenous natural gas reserves. phase should be relatively easy to balance • Technology for hydrates extraction and with market demand. Larger developments, processing is in its infancy with no as illustrated in the 150 PJ scenario, may offer development having been commercialized greater economic benefits but face a more as yet, placing a high level of uncertainty challenging and protracted effort to sell their on the cost estimates used in this analysis. full capacity on the domestic market. Inclusion Whilst there is a significant margin of export capacity in the latter 300 PJ phase between hydrate project economic IRR’s will provide flexibility and anchor demand and government guidelines based on these during the ramp up of the domestic market. estimates, this will diminish should these Whilst this could result in risk of stranding costs increase, the outlook for oil prices methane liquefaction capacity, it is probable decrease, or LNG prices become depressed the hydrate mining could be expanded to through competition with gas hydrates match. should the uptake of the latter become widespread. Increasing the research effort to understand and prove hydrate technology will reduce this uncertainty, minimize investment risk and help bring forward commercialization of hydrate resources.
Appendicies Page 171 • Accelerating the development of hydrates domestic gas market and will be more resources as an alternative to imported sensitive to project costs and the outlook LNG will significantly reduce the long term for oil and LNG prices. economic cost of supplying gas to the New • A staged hydrate project development Zealand market. It is important that policy with a small proving project preceding settings are put in place to encourage the main development will reduce project early investment in New Zealand’s hydrate risk and help understanding of technical resources otherwise international investors and marketing issues prior to the principal in this technology will preferentially investment in the project. Whilst the concentrate on other hydrate resources second, larger phase will dictate overall with access to larger and more diverse project economics and will be attractive if energy markets. competing against LNG, the proving phase • Export of hydrate methane as LNG is will not be commercially self-supporting. A technically feasible and potentially can government policy directed at supporting reduce market risk for a large scale investment and minimizing investment development by diversifying out of the during the proving phase will facilitate the fragmented New Zealand gas market and implementation of any subsequent large help anchor investment through long term scale commercial development. export contracts. However, the economic and financial benefits of exports will be lower than competing with LNG in the
Page 172 Hydrates Options Analysis APPENDIX 8: Gas Hydrates Forward Calendar of Events
2025 Completion of analyses and other data collection activities to assess [10] the potential for expanding the technically recoverable marine hydrate resource beyond permeable sandstone reservoirs to include other, non-sandstone accumulation. 2020 Large-scale Federal Involvement in US DoE Alaskan North Slope JIP [10] expected to end 2020 Parameters for Commercial productivity of marine hydrates in Gulf of [10] Mexico understood 2016 (Japan) Estimated full production start date, corresponding with [4] completion of 16-year test and development programme 2015 Completion of possible 3rd Alaska North Slope test well [10] 2015 Confirmation of marine hydrate technical recoverability [10] 2015 Collection of sufficient data to constrain the rates of methane flux from [10] the sediments to the water column and ultimately, to the atmosphere. 2012 (Japan) Preparation for Commercial Production: Phase 3 of Japan’s [5] Methane Hydrate Exploitation Program 2012 Initial Production Test in Marine Environment (Gulf of Mexico) [10] beginning, followed closely by second test. 2011 7th international Conference on Gas Hydrates, Edinbourgh [1] 2011 New Zealand Petroleum Conference, September 2011 (TBC) 2011 Fiery Ice Conference, Wellington, May 2011 (TBO) 2010 Second round of exploratory drilling initiated in Gulf of Mexico [10] 2010 (US) National Methane Hydrate R&D Program expectes to have [11] developed and tested engineering concepts for production of gas from hydrate deposits 2009-2013 2nd long-term test well at Alaska North Slope site. [10] 2009-2010 (Indian)NGHP Expedition 02 may be constituted to drill and log several [3] of the most promising gas hydrate sand-dominated prospects 30 Sep 2009 US Secretary of Energy will report to US Congress on [7] (latest) recommendations of the National Research Council into further methane hydrate research and development needs 10 March 2009 (Japan) JOGMEC Contract for Study of Sand Control for Methane [9] Hydrate formation concludes 2009 Likely beginning of US DoE/BPAX (BP Alaksa eXploration) methane [8] hydrate production site (location currently under investigation) 2009 NETL_supported Chevron-Texaco JIP evaluation of three Gulf of [12] Mexico sites for future drilling and coring activities 2009 (Indian) National Institute of Ocean Technology NIOT to start coring in [2] Krishna-Godavari basin. Vessel “ Sagar Nidhi” 2009 (Korea, US) SK intends in participating in US pilot project at Alaska [6] North Slope 2008-2011 (German) IFM_GEOMAR “SUGAR” Project to develop Exploration, [13] Production and Transport methane hydrate technologies End 2008 – Completion of the [US] Department of the Interior’s (DOI) initial [10] 2010 regional assessment of in-place and technically recoverable resources across the broader Alaska North Slope. Assessment informed by min. one well test in Eileen Trend (Prudhoe Bay region). Production test min. 18 months, depressurization + downhole heating. End 2008 Initial [US] Department of Interior assessment (MMS and USGS) of [10] scale of marine hydrate resources completed End 2008 installation of a gas hydrate sea floor observatory in the Gulf of Mexico [10] 2007-2011 (Japan) Test drilling scheduled /in Japanese Waters (Nankai Trough) [4,5]
Appendicies Page 173 References [9] Japan Oil Gas and Metals National Corpora- tion (JOGMEC), 21 Nov 2008. http://www. [1] http://www.icgh.org jogmec.go.jp/english/news/invitation_ [2] http://timesofindia.indiatimes.com/Earth/In- 081121.pdf dia_goes_deep-sea_diving_for_clean_fuel/ [10]US Department of Energy (DoE)/Office of articleshow/3653330.cms Fossil Energy, July 2006. “Interagency [3] http://energy.usgs.gov/other/gashydrates/in- Roadmap for Methane Hydrate Research dia.html and Development. http://fossil.energy.gov/ programs/oilgas/publications/methane_hy- [4] Bloomberg, “Japan Mines `Flammable Ice,’ drates/mh_interagency_plan.pdf Flirts With Environmental Disaster”, 25 December 2007. http://www.bloomberg. [11] Tomer, B., NETL Strategic Center for Natural com/apps/news?pid=newsarchive&sid=aiUs Gas (2002) “Methane Hydrate Research VKaqDA7g Effort Accelerates” http://media.godash- board.com/gti/4ReportsPubs/4_7GasTips/ [5] MH21 Research Consortium website, http:// Spring02/MethaneHydrate.pdf www.mh21japan.gr.jp/english/mh21-2.html [12] NETL, 2008. “NETL RESEARCHERS PAR- [6] http://www.netl.doe.gov/technologies/oil- TICIPATE IN KEY METHANE HYDRATE R&D gas/FutureSupply/MethaneHydrates/MH_ EXPEDITIONS WORLDWIDE” DOE PULSE Highlights_Archive.html WEB MAGAZINE 268, 25 AUGUST 2008. [7] (USA) Methane Hydrate Research and HTTP://WWW.ORNL.GOV/INFO/NEWS/PULSE/ Development Act of 2005. http://www.netl. PULSE_V268_08.HTML doe.gov/technologies/oil-gas/publications/ [13] IFM-GEOMAR, Germany. http://www.ifm- Hydrates/pdf/HydrateAct_2005.pdf geomar.de/index.php?id=sugar&L=1 [8] CBCNews.ca, 14 Oct 2008 “Methane Hydrate – Energy’s Most Dangerous game” http://www.cbc.ca/technology/sto- ry/2008/10/07/f-forbes-naturalgas.html
Page 174 Hydrates Options Analysis APPENDIX 9: CAENZ Strategic Hydrates Initiatives
By contributing to international efforts to wider gas hydrates research community; assess the commercial feasibility of gas • CAENZ hosted two Visiting Fellows in hydrates production New Zealand should 2008 with the intention of forging closer be better positioned to take advantage of collaborative relationships with their host international development as well as leverage organisations – Dr Karen Kozielski from our limited resources to allow the optimal CSIRO, Melbourne in Christchurch in August; realisation of the economic potential of this and Professor Carolyn Koh, Director of strategic resource. the Gas Hydrates Research Centre at the Colorado School of Mines in Wellington and In addition to the scientific collaborations that Christchurch in September; GNS and NIWA have been heavily involved • CAENZ engaged a Master of Engineering in, CAENZ has been actively developing and candidate over the 2008 summer holidays pursuing strategic initiatives to increase the as a Gas Hydrates intern. CAENZ will international visibility of both the scientific and also be supporting up to three final year research opportunities from the New Zealand Chemical and Process Engineering student gas hydrates resource endowment, as well as teams who will be undertaking Design the world class capabilities of New Zealand gas Projects on gas hydrate related engineering hydrates researchers. problems; • CAENZ recently hosted Gary Humphreys, These strategic initiatives included: Senior Manager Scientific Drilling and • CAENZ being tasked by Crown Minerals to Gas Hydrates from Fugro GeoConsulting, bring together a well attended gas hydrates Houston in Wellington in February. Gary session at the 2008 New Zealand Petroleum was the keynote speaker at an invitational Conference in March 2008; seminar on the key findings from a range of recent gas hydrate national programmes, • CAENZ coordinated a series of private and was also made available to a number briefings on gas hydrates resource of government agencies for private development opportunities to politicians briefings on the subject; and government official in Wellington following the 2008 NZ Petroleum • CAENZ was also approached by the Conference; Chevron-led Gulf of Mexico Gas Hydrates Joint Industry Programme to investigate • CAENZ being commissioned by Crown interest in a ‘NZ Inc.’ participation in the Minerals to bring together an Options Gulf of Mexico JIP; Analysis for the commercial development for New Zealand’s gas hydrates resource; • GNS Science and GeoSphere, with support from CAENZ, brought together a preliminary • CAENZ and GNS Science, jointly bid to gas hydrates roadmap for development host the 2011 International Conference on that envisaged a timeframe for commercial Gas Hydrates in Wellington at the 2008 production of hydrates in New Zealand by ICGH Conference in Vancouver. Although 2020; unsuccessful, the bid has significantly raised New Zealand’s profile within the
Appendicies Page 175 Page 176 Hydrates Options Analysis